Ask Andi: Should sell my business? Someone has offered to buy it. I’m not really ready to get out. But I’m hearing about tax rate changes that reduce what I will get if I wait to sell until next year or later. Should I get out now?
Thoughts of the Day: How and why to sell your business is not just about tax rates. Look at your options. There are many questions to consider. It comes down to short and long-term goals and values. In my opinion, as a society we spend way too much time worrying about tax planning and not nearly enough time on strategic planning.
Should you sell your business?
Here’s a partial list of what our taxes go for. Roads, trains, and buses to get employees to work and goods to market. Airports so we can fly away to visit customers and ship goods in and out quickly. Storm recovery to get us back to work and help with economic and physical damage repairs. Schools that educate our employees and the next generation. Police and judicial system to keep order. Military forces to defend our borders and keep goods safe as we import and export. Patent and copyright registration. Internet so we can communicate and transact business at speeds we only imagined a few years ago. This is a small portion of the benefits paid for by taxes.
Think of it this way. You pay for office supplies, rent, phone lines, employees, electricity, etc. You pay bills as they come due. Yet, when it comes to taxes something weird happens. We eagerly consume much of what the government has to offer. And then we look for ways to duck the bill. Instead let’s focus on strategic planning.
What will happen after you sell? What’s your goal?
- Continued employment for people who helped build the business?
- See sweat equity turn into a legacy?
- Fund retirement?
- Contribute to the well-being of future generations?
- Shut the door or sell in a hurry, leave value on the table?
You’d be surprised how many owners choose the last option. They didn’t focus on the strategy of exit as much as they did on day-to-day operations.
Selling a business doesn’t happen overnight. If you don’t have buyers lined up and a business prepared for your exit, it’s too late to get maximum value this year. Selling a business that isn’t prepared for sale means you’ll leave more than tax savings on the table when you negotiate your exit price.
How do you figure out if it’s time to sell and who to sell to? What comes into play is
- Owner’s level of commitment to the business
- Growth and profit gave current market conditions and available resources
- Business’ present state of readiness for sale
- Desire to have the company continue after you depart
Start with a realistic assessment
- Are you still willing and able to work hard to help the business thrive?
- Can the business hit 15%/year growth AND increase profits?
- Are sufficient reserves in place to keep the business safe?
If the answers to any of those questions is, “No”, it may be time to get out before things get any worse. If the answers are all, “Yes”, stick around, build the business for tomorrow’s buyer, who wants to acquire a turnkey business. Build this:
- Management and procedures in place, run without the owner involved
- Profitable customers secured by contracts
- A niche that is hard for competitors to break into
- A productive, committed, educated workforce
- Up-to-date systems and equipment
- Profits are set aside as reserves to demonstrate the company’s value. And to build up cash to take with you when you do sell
Looking for a good book?
11 Things You Absolutely Need To Know About Selling Your Business, by John F. Dini
