Can You Afford To Sell Your Business?
In the last issue (#14), we discussed The Top 10 Ways to Increase Your Business’ Value. In this issue we ask the question Can You Afford to Sell Your Business?
" The question isn't at what age I want to retire, it's at what income." George Foreman
Can You Afford To Sell Your Business?
One of the primary reasons business owners sell is to enter the retirement phase of their lives. Especially when that is your motivation, you need to determine if you can afford to sell the business.
If you don’t try to ascertain affordability on the front-end and put your business on the market without that information, you may be negatively surprised and have to back out of an agreement imminent to closing. That can be emotionally painful while also creating potential legal issues. In addition, if a confidentiality breach occurs as a result of such a scenario, you run the risk of damaging future salability of your business.
Obtain a realistic estimate of the value of the business
The first step to determining if you can afford to sell a business is to obtain a realistic estimate of the current fair-market value. Many business brokers are interested in developing long-term relationships with prospective sellers and will provide no-charge, no-obligation evaluations of businesses, including a broker’s opinion of value. In fact, it may be a good idea to obtain a second opinion by talking with a couple of brokers. Consider reading our Special Report, “Insider Secrets To Selling Your Business – Business Broker Best Practices and Selection Criteria,” to aid you in selecting brokers to work with.
Find a professional advisor with business exit planning experience
Once you have a realistic idea of the current value of your business, determine if your existing professional advisors have business exit planning experience. Exit planning can be a sub-specialty for other licensed professionals such as CPAs, attorneys, financial planners, investment consultants, etc. Another alternative is working with a certified exit planner, a relatively new profession that specializes in helping small business owners through the business exit planning process.
Estimate your future income
Although it is not unusual for the company to be a business owner’s largest asset, there are usually other types of income and assets that should be taken into account when planning for retirement. These may include spousal income, Social Security income, other retirement income and plans, IRAs, annuities, other types of investment securities and savings, real estate holdings, life insurance cash values, etc. In addition to the net proceeds from a business sale, those other assets and income should also be factored into the retirement calculations.
