You've put in your time as the boss of your own business. Now, you’re ready to kick back and enjoy your golden years. That's right – it's time to cash out and enjoy what you've worked so hard for.
To put this in perspective: Research shows that a whopping seven in 10 businesses end up failing within the first 10 years. So, if you made it to retirement age as a business owner, congratulations! You're in the minority.
But don't celebrate just yet. [quotesright]You've still got a little work to do before you can cash out and enjoy the good life. [/quotesright]
We've compiled a guide for how to prepare for retirement the right way. The right steps will set you up for financial security in retirement as well as protect your business legacy for years to come.
Determine Your Business's Value Before You Cash Out
First, make sure that you've got enough money to support your lifestyle in retirement.
Achieving that goal can be a complicated process both financially and emotionally. Part of the process involves figuring out your company's value. Most business owners overestimate the value of their company, believing that since they own a business, it’s worth six or seven figures. In fact, most business brokers have to tell the majority of owners: “You have few assets and low or no profits, we’d love to help but you don’t have anything to sell.” It’s crushing for a business owner.
Admittedly, this isn't the easiest step since you have to consider a multitude of factors. The valuation of a business is complex and requires experience in finance and market valuation that few owners possess. Engaging the services of a competent merger and acquisition professional or respected business broker is the best way to get a fair assessment of what a buyer would likely pay for your business. [quotesright]They’ll also point out weaknesses that hurt value. [/quotesright]
The truth may hurt, but you must know what you company is worth. And, if there are deficiencies that are hurting your value, you’ll have time to resolve them and realize the full value for your company and all your hard work and sacrifices.
They will show you what companies similar to yours are earning, as well as how much they're being sold for based on their earnings and other factors. With that knowledge, you can confidently come up with an appropriate sale price for your own business.
If you price your business wrong, it won’t sell, or you won’t accept any offers you do get. At best, you'll take a lot longer to cash out than you'd like. [quotesright]There is an old saying among acquirers: “You name your price; I'll name the terms.” – Forbes Dec. 3, 2017. [/quotesright]
Next, you’ll need to put on your detective's hat and study your competition to find out what types of buyers exist in your niche. Buyers buy for many reasons and some classes of buyers will pay a premium. Knowing what types of buyers will be interested in your company and the people to contact about your sale is typically far beyond the average owner’s level of expertise.
The Paperwork
For someone who has never sold a business, the requirement for documentation will be a shock. Think about the paperwork you had to give your mortgage lender when you bought your home. Now multiply that by about 100 and you’re getting the idea.
[quotesright]No one is going to buy your business for six or seven figures or more because you say “It’s a great opportunity.” [/quotesright] They are going to want to know everything and be certain they know exactly what they are buying.
Getting that package of information together for a buyer is called “due diligence.”
Financial statements, tax returns, operating information, customer analysis, legal documents…the list can easily cover 100 or more specific items and take weeks to months to prepare. Having pros who have done it all before helping you will expedite the process, so your sale goes smoothly.
Now you know why having experts working with you to sell your company is so important.
Be Picky About the Buyer
It’s also critical that you're picky about your buyer. [quotesright]Spend plenty of time analyzing whether a potential buyer is truly a good fit for your company. [/quotesright]
We know you may be tempted to unload your business and hit the golf course or the beach sooner rather than later. But don't rush this decision.
If the buyer you select does not have the same business philosophy as you do, you may not be happy with what becomes of your company.
Unless you sell for cash, your payouts over time are no more secure than the person taking over your company makes it! If they go bankrupt, so do you. [quotesright]Seller beware. [/quotesright]
Groom Your Business So It Sells At a Premium
Think about your business like you would selling your home. Most buyers don’t want a neglected, run down, poorly maintained home they have to live in and rehab at the same time! They want to open the door and start enjoying the experience. So, before you list your home, you make repairs, replace old appliances, paint everything, and make your home shine.
Business buyers look for businesses that “shine” too.
Your potential buyers will evaluate if your business will operate smoothly, even when you're no longer steering the ship. If “you are the company” who would buy it knowing when you leave there is no company?
Resolve that concern by making sure that the management team you have in place is a solid one. It should be a group of people to whom you have taught leadership as well as the proper company procedures and policies and who can run it better than you can.
You’ll know you have what a buyer wants if you can leave the company and take a month or two off and it runs itself. [quotesright]You want to have a company any investor can buy, not just someone who knows the business as well as you do. [/quotesright]
Good companies go for great prices and the more potential buyers there are, the higher the premium paid will be.
Clean Up Your Act
A step that might make your company more attractive to aspiring buyers is to produce a strategy explaining how you see your business growing in the future. Establish clear objectives and pathways for achieving them.
For instance, delineate where the business's clientele will come from. If safety and health is an important part of your industry, set out a strategy for dealing with this area.
Is there anything else that needs to be examined before you offer your company for sale? Do your research so you can demonstrate that you have solutions, not lingering problems that may hinder a possible deal.
Look for any weak links.
Review your managers to determine their capabilities as well as their impact on your business. Make sure you are not carrying people who are not contributing more than you are paying. Obsolete equipment or poorly maintained furniture, fixtures and facilities are other things you need to remedy if you want to sell your company and not see your price discounted.
Automate your processes as much as possible, such as those dealing with estimate policies and billing. The more automated your business, the better it will run and buyers notice these things.
One more thing: Do you run your company with a business partner? Be sure that you're both on the exact same page when it comes to your business-selling strategy. [quotesright] Buyers want easy clean deals, not squabbling partners who waste their time. [/quotesright]
The more competent your second-in-command is, the greater the peace of mind you'll enjoy and the more attractive your business will become to buyers.
The Sale
Now, it's time to ready the troops. These "troops" include specialists such as your business accountant, business coach, attorney, and merger and acquisition agent or business broker.
Your personal accountant is particularly important. He or she will tell you how you'll be affected come tax-filing time and help you structure the sale so you minimize taxes and maximize your return. It could be you’ll want a financial planner involved if you don’t have one already to help you manage the money for the retirement you’ve worked so hard for.
[quotesright]Become acquainted with every part of the sale process so you're actively involved in negotiations and everything else taking place. [/quotesright]
Stay Focused
Don’t screw it up now. This is an incredibly important step when you're ready to cash out and enjoy your retirement years.
[quotes]Yes, your mind is already on your future. [/quotes] But don't let your personal planning happen at the expense of your business's future and its present status.
Failure to stay focused on the business may negatively impact the business's staff morale, finances, and customer retention. This may decrease your company's value.
Next Steps
Once you've taken the right steps to successfully sell your business, you can finally focus on exploring brand-new opportunities.
Perhaps you want to engage in new challenges, or maybe you simply want to take it easy by doing leisure activities.
Either way, your business's sale will provide you with the flexibility to pursue your retirement-period dreams.
Resources
As you draw near to your retirement years, planning early will help you to maximize your business's value. Then you can enjoy the biggest retirement fund possible.
We can help you through the process.
As experts in helping small businesses to thrive, we can help you rapidly improve your business and increase its appeal and value. Our specialized FocalPoint Finance group can work with us to help you determine the value of your company and identify any areas where improvement is needed. And if you so desire, we can help you prepare for the sale of your company.
Get in touch with us to find out more about how our team can help you prepare to cash out with a solid gold nest egg. That way, your next 30 years will be even better than the last. Let’s start a conversation: USA: 877.433.6225 feedback@focalpointcoaching.com
