If you’re like the majority of small business owners, your business is an important part of your retirement plans. Perhaps you haven’t had the opportunity to save any funds for retirement outside of your business, but you see your small business as your trump card: when the time comes, you’ll simply sell it and retire comfortably on the proceeds. But what if your trump card is actually a Joker? Your entire retirement strategy may be compromised.
Here are some issues you’ll need to address right now if you want to sell your business and retire at any point in the future:
Do you have something valuable to sell?
Many successful companies are one-person operations, meaning that their success is based on one person’s creations, ideas, or even charisma. And when he or she leaves, the company follows. Others were at one time very profitable businesses but have since been surpassed by new technologies or consumer preferences. Video stores, for example, while once hugely popular, are no longer in business after being largely replaced by streaming.
It’s important to ask yourself “do I have a business that someone else would be interested in purchasing?” To put it another way, will someone else be able to profit from this company in the future?
Be realistic about the value of your small business
What is the true value of your small business? Perhaps it isn’t what you believe it to be. What someone is willing to pay for your company may be far less than what you desire. Small businesses, like houses, are only worth what they can sell for on the market at the time they’re sold, not what you hope they’ll sell for.
And no amount of sweat equity is worth anything unless you can show its value in dollars and cents. If you don’t know how much your small business is worth right now, you should figure it out, because not everyone gets to choose their retirement dates. A sudden illness or unforeseen event can throw everything into disarray and force us to retire sooner than planned.
Begin preparing to sell right now
Would you be able to sell your company right away if you had to do so? Would it be in good enough condition to get you top dollar – if there were any buyers at all? That’s why so many advisors tell business owners that they should start preparing to sell their company right now, regardless of when they plan to retire.
It’s not all that different from selling a home. If you’re getting ready to sell your house, the first thing you should do is clean up the landscaping and re-paint the kitchen and bathroom. When it comes to selling a business, you’ll want to make your track record look better and clean in order to get the most money for everything you’ve put into it over the years. You’d like to have at least three years of solid financials and sell when the neighborhood is hot, but you’ll also need to clean up your balance sheet, which may entail moving assets around or eliminating bad debt.
Create a seller’s plan to make the transition easier
Three years of solid financials is an admirable goal, but it’s only one step in the process of getting your small business ready to sell – just as putting a new roof on your house isn’t enough to sell it. A solid plan and a to-do list, as with any project, will be beneficial. Everything needs to be cleaned up and made accessible, including the premises, business records, customer data, and inventory.
You’ll also want to consider whether you want an asset sale or a share sale, in consultation with your accountant and/or tax lawyer. It’s possible that a share sale would significantly increase your profits when you sell, but you’ll need to set up your business as a corporation to do so.
Planning makes all the difference
Who wants to be the person who goes to sell their business and retire only to find out they only have inventory and fixtures to sell? Planning to sell now and doing what you need to do to make your business more appealing will ensure you have a full deck of cards when the time comes to sell.
If you are looking to sell, buy, or franchise your business, Certified Business Broker, Moche Hazout and The Transworld Business Brokers team have the qualifications as well as the expertise to assist you throughout the entire process of business transaction. Our Transworld team of professional business brokers are the best in the business and put their clients first.
Looking for an experienced Business Broker? Call us today!