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Selling a business is a major step many business owners take when they are ready to retire. Yet the question, “Are you ready to sell your business?” can send business owners into panic mode. Truthfully, you may never be emotionally ready to sell your business. After all, you’ve poured your life and soul into your business. However, you can make personal and business preparations now that will have you ready to sell your business in the future.
Personal Preparations
What can you do personally to prepare yourself for the sale of your business?
- First, you can set clear personal goals and objectives for life after the sale of your business. Make plans! What will you do everyday? Where will you go? Will you travel? Will you spend time on the golf course? Are you going to spend more time with children or grandchildren? Sadly, for most business owners, your identity is your business. Your life has revolved around the business, and you’ve neglected your personal life. There is life apart from your business, but if you don’t make plans to live it, you will feel lost and unhappy after your business sells.
- Next, get your personal finances in order. In other words, make sure you can afford to live the life you want to live after you retire. Right now, if you need more money, you can probably work longer or harder. After your business sells, though, you won’t have that luxury. Work with your financial planner NOW to identify how much money you will need each month and each year after you retire. Then, save, save, and save some more. Don’t depend on the sale of your business to be your financial ticket to retirement. Save for retirement apart from your business, and let your business’s sale be the icing on your retirement cake.
- Third, gather a professional transition team around you. Planning to sell a business is not a spur-of-the-moment decision. It typically requires years of planning with a transition team that includes a sharp business or tax attorney, a good Certified Public Accountant, and a phenomenal CERTIFIED FINANCIAL PLANNER™. Ideally, choose a CFP® who boasts Certified Exit Planning credentials on top of other credentials.
- Finally, make contingency plans. What happens if your business doesn’t sell for the value you think it is worth? Have you saved enough in your personal accounts to enjoy retirement still? Do you want to sell the business but continue working in it for the new owners? What if you receive stock ownership instead of cash for the sale? Work with your transition team to prepare for the “What-if” situations that could arise as you prepare to sell your business.
RELATED READING: Act Now: Your Owner’s Exit Plan Can’t Wait Until You Sell Your Business
Business Preparations
After you prepare yourself to exit your business, you need to make sure your business is ready for sale.
- First, determine your business’s value. Do you think your business is worth a certain amount? Have you had an appraiser determine how much your business is actually worth? Will your business be worth its net income times an industry multiplier, or will it be worth its Earnings Before Interest, Taxes, Depreciation, and Appreciation (EBITDA) times an industry percentage? If you’re getting ready to sell your business, don’t wait for a buyer to place a value on your business. Do your due diligence and have your business appraised first to make sure it will sell for the price you expect it to sell.
- Next, prepare accurate financial reports. Have your Balance Sheets, Operating Statements, and Key Performance Indicators (KPI) clear and ready for buyers. Buyers will look at your reports to see that your business is profitable and financially stable. Additionally, lenders who are loaning buyers money to buy your business want to see that your company is profitable and financially stable.
- Third, decide how you want to be paid when you sell your business. Obviously, cash is king, and you desire a cash sale. However, many sales turn into stock-option buy-outs, EarnOuts, offers of employment, or seller-carried notes. Decide now what works for you and what doesn’t.
- Finally, start tax planning with your CPA and your CFP®. The IRS typically taxes earnings from the sale of intangible assets at Long-Term Capital Gains rates and earnings from the sale of tangible assets at higher Ordinary Income rates. Therefore, work with your professional team now to determine your asset percentages. Rely on your team to time the sale and to minimize your negative tax implications upon the sale of your business.
Conclusion
When you decide you are ready to sell your business, don’t move forward alone. Talk to your family and friends to get their support. Then, gather your professional team together. Lean on your CFP, your CPA, and your attorney as you navigate this personal and business transition.
For more information about selling your business, be sure to check out my blog series, Building a Sellable Business. In this series, I offer you ways to increase the value of your business before you sell it, ways to prepare your business for sale, and ways to sell your business. You won’t want to miss it!
