When you started out in business, you probably didn’t think much about eventually selling your company. However, statistics show that 80% of a small business owner’s net worth is tied up in their company. Therefore, preparing your small business for a profitable sale should be on your radar.
You can choose to sell your business outright to a third party, or transfer to partners or family members. In any of these scenarios, here are some steps you should take to protect your assets:
Know how much your business is worth. Getting a professional business valuation is the first step to achieving a profitable sale. Be sure that whoever values your small business has experience valuing businesses in your industry.
Grow your small business like an investment. Any potential buyer of your business is looking for a good investment, one that will continue to pay long after you are gone. So be sure your growth strategies are built on a solid foundation. Build your business as an investment by having a diverse management team that has some stake in the business, so they will stay with the company after the sale. Find ways to ensure recurring revenue since businesses that have guaranteed income each month are more attractive to buyers.
Consider tax implications. Tax consequences will help you determine the best time to sell your small business. For example, funding an employee retirement plan and other tax saving strategies should be used to shelter assets from taxation.
Have a written business plan and company processes. Nothing will make a potential buyer hesitate more than if your business plan exists only in your head. Be sure your business plan and company processes are well documented so that new ownership can take over and run the business seamlessly with or without your help.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.