Question: Even though retirement is still several years away, I think it is unlikely my business will be transferred to an employee or a family member. How soon should I start developing my plan to sell the business?
Answer: Taking an active role and setting goals now to prepare your business for a sale down the road will allow you to get top dollar when the time is right for you to make your move.
Another reason to set your exit goals sooner rather than later is because preparing and transferring a company for top dollar takes time – on average five to ten years. Most of that time will be spent preparing your business for sale. If for some reason you decide to transfer the business to employees or children instead of a third party, you’ll need to develop a plan so that over time they can earn the money to pay you for your interest since those two groups rarely have sufficient funds to purchase the business.
The more time you take to design and implement income tax-saving strategies, build value, and strengthen your management team, the more likely you are to reach your personal and professional financial goals. In addition, it’s important to keep in mind that the market doesn’t operate on your schedule and may not be paying peak prices when you decide you’re ready to sell to a third party.
When it comes to exiting your business there are three scenarios to consider:
•Do you wait for the call? Many business owners believe that one day a potential buyer will call them, negotiate a fair price and they’ll walk away with something to show for their years of hard work and dedication. This is an option but not a very realistic one. The law of supply and demand conveys what kind of market it will be for sellers. There is an overwhelming supply of businesses owned by baby boomers who will be ready to sign on the dotted line over the next decade. Owners who take the time now to prepare for the future will have the best options when it comes to exiting their business.
•Do you liquidate? Liquidation is an option for owners with declining cash flow and little probability of improving without a comprehensive, well-executed exit strategy. If you are facing this situation, contact your tax and other advisors who can help you plan appropriately in order to develop the most tax-efficient liquidation possible.
•Do you set your exit goals and plan accordingly? If the idea of leaving your business with little or nothing to show for it is intolerable, you need to start today. First, you need to choose a departure date. Once you know your time frame you can begin to plan. Next, you must determine your financial needs. How much do you need (after taxes) to live the lifestyle you desire once you retire and/or leave your business?
After you have identified your time frame and financial needs you can begin to focus on any potential gaps that may exist. Is your departure date unrealistic? Are your financial needs achievable? If necessary, modify your plan.
Have your business appraised by an independent third party to ensure it has the necessary value to meet your financial and other exit objectives. If it doesn’t, you can take the time now to implement value drivers that will increase its value over time.
In addition to determining what your business is worth, you should begin to consider strengthening your management team and grooming your successor. Whether you plan on selling to a third party or transitioning to key employees, your business should run successfully without you. In order for that to happen you must begin training and developing the skills of your leadership team today.
Taking the time to plan when and how you want to leave your business allows you to maintain control throughout the process and protect your business and your family’s financial future at the same time. Based on your objectives and the realities of your business, consider engaging a certified exit planning professional to forge a plan with accountability and decision-making deadlines.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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