- December 20, 2013
- Posted by: Business Brokers & Consultants
- Category: Seller Articles
Implementing a proper Exit Strategy before you actually need it, is the best way to protect your business against unforeseen events
Selling can be an organized, rewarding process, or a gut wrenching and depressing end to what was once a gratifying career. A good exit strategy starts with simple awareness: Some day you will retire. Even if you are not planning to sell your business at that juncture, you should at least acknowledge it as a possibility and should understand the process. Running a business as if you plan to sell it will make any retirement transition easier. It will also allow you to implement small changes in your day-to-day business activities that will payoff in the event of a sale.
First, you should understand that no matter who ends up buying or inheriting your business, its transition will involve a Due Diligence Process and Tax Consequences. These important factors cannot be attended to at the last minute which is why it’s so important to build a relationship with an experienced broker before you need to sell. They will be instrumental in helping you form a good Exit Strategy and give you insight about what you could be doing to significantly impact the value of your business in the future. The best time to sell is not when you are burned out, ready to quit, or forced to do so because of unforeseen circumstances, it’s when you don’t have to! The best transactions occur when the Broker has just the right buyer with a real need to buy, the business is strongly positioned, and the business owner isn’t under pressure to sell.
BB&C can help pinpoint exactly what you need to do today to better position your business for a future sale. While working with you and your CPA, we can help you uncover and remedy issues that will devalue or hinder the sale of your business. We look at things like your facilities, leases, employment agreements, financials, and client and vendor agreements; all with an eye on the impact they will have on a future sale.
Our goal is to give you an Exit Strategy that allows you to work incrementally towards that end. With just a little bit of effort applied in the right direction each day, you can easily position yourself for a smooth and profitable sale.
Placing a realistic eye on the tax consequences associated with selling your business is also vital. Most sellers want “full asking price, all cash at closing.” They fail to consider the tax consequences this will have, not to mention the fact that such expectations are rarely met. This expectation is unrealistic for two reasons. First, buyers want to leverage their capital. A buyer with $500k in investment capital wants a Million dollar business with $400K in cash flow, not a $500K business with only $150K in cash flow. In addition, SBA backs most small business loans and they require at least some Seller carry back. So, be realistic and plan in advance how the proceeds of a sale will be distributed. Your CPA or Tax attorney can help you understand your tax position and the options that should be considered. Many times, making an initial offering that includes financing (on terms you have already carefully considered) will not only reduce your tax consequences but also increase the value of the business. Buyers recognize the value and implied confidence even partial seller financing adds to an acquisition.
If you would like to know more about Exit Planning Strategies give our office a call. We would be happy to meet with you in complete confidence, and our initial consultation is free.