90%
Up to 90% of the business owner's net worth is tied up in the business
75%
For lack of planning approximately 75% of businesses never sell
66
There are 66 potential obstacles to the successful sale of a business.
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In the last issue (#31), we discussed Preparing to Sell Your Business - 8 Steps to Increase Value. This issue will discuss Preparing to Sell Your Business - Planning Considerations.
A Favorite Famous Quote
"If you don't design your own life plan, chances are
you'll fall into someone else's plan. And guess
what they have planned for you?
Not much." Jim Rohn
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The first step to preparing to sell your business relates to establishing your personal goals and your existing personal financial situation. |
The information accumulated in this process sets the foundation for the rest of the preparation activities. From both a financial and mental standpoint, the objective is to establish where you are currently and where you want to go. The answers will help outline a path to achieve your goals and help you control your own destiny.
Studies indicate that the business represents 50 - 90% of a typical business owner's net worth. With that in mind, as you begin the planning process, one of the first things to accomplish is to learn the realistic value of your business. Many business owners have no idea or inflated expectations of the value of their business. This does not have to be an expensive proposition. Many good, qualified business brokers will provide no-charge, no-obligation evaluations of small businesses including a broker opinion of value and identification of obstacles and opportunities. The valuable information gained through a broker's evaluation is a great way to begin the planning process.
For those who also own commercial real estate, including the facility occupied by your business, it's important to also know its realistic value. Ultimately, before putting your business on the market, it's a good idea to obtain a professional appraisal. However, for purposes of preliminary planning, a comparative market analysis (CMA) provided by a qualified commercial real estate agent (or a couple of agents), can provide a reasonable estimate of value sufficient for planning purposes. CMAs can often be obtained at no cost. Again, because of the wildly fluctuating market of perceived values in commercial real estate, a CMA is not sufficient if you intend to sell the business in the near-term.
To complete the picture of your existing personal financial situation, assess the value of your other assets. At this point, you should also try to project your future living/lifestyle expenses as well as future income including your expected income, spousal income, investment income and various forms of retirement income that you are entitled to. In addition, you need to understand the tax implications of a business sale and the future income flows. To develop meaningful information, it's best to work with qualified personal financial planners and tax advisors.
Your personal goals as they relate to whom you would like to sell your business influence the business exit planning process. Are your goals to ultimately transition your business to a family member, co-owner, or employee(s)? If so, although there may be much in common with selling to a third party, the planning and preparation process needs to be tailored to that goal. Determining the likely buyer type (co-owners, family members, employees, third party individuals, larger corporations) for your business is something that should be determined early on.
To estimate your longer-term post-business-ownership living/lifestyle expenses, it's necessary to have some idea as to timing and of your intentions after you leave the business. Depending on how far out you are from making the actual decision to sell, this can be the most difficult information to discern. Even if you are more than ten years from selling your business, the benefits of developing an exit plan are so significant that it's important to go through this exercise. It's a necessary step in the process. So, discuss your post-exit interests with your spouse or significant other and try to develop preliminary but flexible plans. Just do it! It doesn't have to be final and can be flexible but the conversation needs to take place to enable the rest of the planning process.
These are ......
This 90-issue email newsletter series provides information about:
This 90-issue email newsletter series provides information about:
The newsletters provide information on:
Preview our free special report:
Insider Secrets to Selling Your Business
Packed with insider secrets to help you begin the process of thinking about your exit strategy. Whether you intend to sell in two years or ten years, this is a MUST READ!
Read our valuable free white paper:
Why It's Important to Plan the Sale of Your Business
If an owner recognizes the need to plan for their business sale and executes a plan to identify and address the obstacles to a sale, the 3:1 odds against a successful business sale can be reversed to 3:1 in favor of a successful business sale.
