— Counting down
A. Congratulations on your pending retirement, but boy, you have a big job ahead of you.
Succession planning is a tremendous challenge for most business owners and there are few easy answers. Most small business owners look to turn their businesses over to family, internal successor employees or sell them to an outsider.
But you said your children aren’t interested, so let’s look at the other two options.
Transitioning a business to one of your employees may be gratifying in a number of ways, said Brian Kazanchy, a certified financial planner with RegentAtlantic Capital in Morristown.
“Typically, the successor is someone that has worked with you and helped growth the business,” Kazanchy said. “Providing them the opportunity to take over may be partially done to reward their hard work and loyalty.”
Selling to an employee may also be the best thing to provide continuity for the company’s existing client base and provide some level of comfort that the business will not change dramatically once you leave.
But, internal successions are rarely completed without the departing owner selling at a discount to the full market value, Kazanchy said.
The logistics of completing a sale to an employee may force the departing owner to retain risk in the company while being paid out over a number of years, he said.
“The buyer is unlikely to have the wealth to pay for the business or qualify for a loan to fund the business purchase,” Kazanchy said. “Therefore, this type of succession is generally most successful when it is done over a longer time period.”
For example, the departing owner may agree to a sales price — below fair market value — that is structured as an installment sale, Kazanchy said. The new owner then uses cash flow from the business to buy out the departing owner over a multi-year period.
“The biggest risk for the seller would be a downturn in the business — or some other liability — that puts future payments at risk,” Kazanchy said.
He said the most successful succession plans are the ones that are planned far in advance.
You should review your personal financial goals with an advisor so you can determine how much you need to earn from a sale to fund your retirement, Kazanchy said.
“This can be especially tricky for business owners since there is often a number of expense that will continue into retirement that are currently paid through the business,” he said.
Additionally, you may need some combination of corporate attorneys, investment bankers and valuation specialists to properly plan for the sale of a business and ensure that a fair price is obtained.
“Finally, don’t underestimate the psychological transition the will ensue from owning a business to retirement,” he said. “Planning ahead for this transition can make a big difference in your overall mindset as you work through the process of selling your business.”
Read More: The challenges of selling small business | http://nj1015.com/the-challenges-of-selling-a-small-business/?trackback=tsmclip
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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