Are you thinking about selling your small business and sailing into the sunset? Have you poured blood, sweat, and tears into your small business over the years and are now ready to settle into retirement? That’s great, but where should you begin? In this article, we will discuss a few simple questions that will help you in the planning of the sale of your small business.
Question 1 – When Do You Plan To Retire?
This question sounds relatively easy, but the reality is that over 70% of small business owners don’t know how to answer it.
Fear of the unknown is a real thing. Questions like, “If I sell my business, will I have enough to live on? Will I be able to find the right buyer? What are the tax implications of the sale of my business? What is my business worth? How do I plan to retain key employees?” Facts are your friend, so let’s start putting some data together to help you in the decision-making process.
Question 2 – What Is Your Exit Strategy?
These questions build on each other, and there is some overlap in the responses to some of them. However, this question starts to help you gather relevant data about your business, which will, in turn, help you answer the question, “When do you plan to retire?”
In this stage, you will begin to answer questions about the future of your business, management, and ownership structure. Can you sell your small business outright? Do you have equipment to sell? Do you need to stay on as a consultant for several years?
These are just a few simple questions to ask yourself as you begin to plan to exit your business.
Question 3- Have You Planned Your Exit Strategy?
Did you know that the average small business owner has 90% of their wealth wrapped into their business? No wonder it is hard to answer the question, “When will you retire?”
Here is another stat for you: 70% of Baby Boomers (roughly ages 60-78) don’t have a plan for exiting their business. Maybe some enjoy what they do, and they don’t intend to slow down at the moment. Others can’t fathom the thought of not having an income and they don’t have a retirement plan in place. Some don’t know if they have saved enough for retirement.
A wise and smart business owner will plan for their retirement about five to six years before actually retiring. Why? Part of that question is answered in Question 4 (Do you have three years of financial audited statements by a reputable third party?), and part of that answer is in Question 2 (Will you need to stay on as a consultant for a few years?).
Question 4 – How Do You Plan To Maximize The Value Of Your Business?
Do you know what your company is worth? Before selling your business, you should have three years of financial audited statements by a reputable third party to get an accurate valuation. Most small businesses have their books done by a spouse, the owner, a friend, etc., but to maximize the sale of your business, you need to have a professional “sure things up.”
Question 5 – What Is Your Plan When You Exit The Business?
Lastly, for the purposes of this article, what does retirement look like for you? How much can you spend in retirement? Are you going to outlive your money? Being able to quantify this in our brains is impossible. We all know that saving in an employer-sponsored retirement account is good, and saving in a Roth IRA is also good. But what does it really mean in the end?
This is where a Financial Advisor can help create some projections for you on paper that will aid you in the decision-making process of planning for life after retirement. Maybe you aren’t retiring. Perhaps you are just selling the business and moving on to something else. Either way, you need a plan that answers the question, “What will I do after I sell my business?”
Conclusion
Have you figured it out yet? Many of these questions can be answered by meeting with a Financial Advisor and CPA, and many more need to be answered.
As a small business owner, you probably feel like you work 80 hours a week, and maybe you do; so, when do you have time to plan for the sale of your business? Here at Whitaker Myers Wealth Managers, we will do our best to help you in the sale of your small business, and we have a 3-step process to help you maximize the valuation of your business, mitigate the risk during the sale of your business, and map out the future as you sail into the sunset. So please reach out to an advisor today so you can be confident in the timing of your decision to sell your business.
Selling Your Small Business
May 28, 2024
Stephen Armstrong
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