When you are ready to retire and sell your business, it is imperative to know what your company is worth, what documents you need to have ready, and who the potential buyer could be.
The uncertainty of how to sell your business is something small business owners struggle with and even they need to have an exit strategy. Unfortunately, the best solution is not to just wake up and decide to sell your business because it can be catastrophic.
Selling a business can take time. Usually anywhere from six months to five years and starting early gives you time to adjust, which can lead to better sales prices. One thing to do is clean up the books. Make sure you are separating owner-specific businesses expenses and consider having the businesses finances audited.
Make sure you are considering pricing and taxes. Advisers use different methods to price a company. One way is to compare the valuations of publicly traded companies that are like the privately held business up for sale. Another is to look at acquisitions of similar companies with publicly disclosed prices. Thirdly, is a discounted cash flow analysis, which forecasts the value of the acquisition based on anticipated cash flow. Buyers will typically base what they are willing to pay on a multiple of the seller’s earnings before interest, taxes, depreciation and amortization, or EBITDA.
And don’t forget that the sale of a business also has tax implications for the owners. There are various ways to structure the sale for tax purposes and are worth looking into.
There is also the factor of what potential buyers may plan to do with your company. If you want your business to survive, selling to someone who only wants the market share may not be the right fit, whereas entrepreneurs hungry to grow the company may be.
Many business owners have built their company from blood, sweat, and tears and it’s not easy to let go. However, knowing what you are going to do to fill the time may make it easier. Planning what you want to do next can help you look forward and find peace with this big step.
Regardless of what you decide to do, if you are a business owner, you need to have an exit strategy in place to ease the process. John Davis is a Certified Public Accountant (CPA), Certified Valuation Analyst (CVA), and Certified Exit Planning Advisor with decades of experience. For more information on exit planning, call our office at (802)-878-1963 (Williston) or (802)-775-7132 (Rutland) or email [email protected].
With offices in Williston and Rutland Vermont, Davis & Hodgdon Advisory Group has served business owners and individuals for more than 30 years by providing progressive, proactive tax and business services through expert staff, high-end technology, and unparalleled efficiency. Contact us today.
Resource: Kiplinger “Business Owners Need an Exit Strategy When They Are Ready to Retire” by Jackie Stewart.