Selling a business is not just a financial decision; it is also a lifestyle change.
As baby boomers head toward retirement, many will be faced with the prospect of selling or transferring a family business. If you’re a business owner in this situation, here are five key issues to keep in mind.
1. Plan well in advance
Selling a business is not just a financial decision; it is also a lifestyle change. Make sure that you prepare not just for the financial consequences, but also for the personal ones for a successful transition.
2. Beef up the financial statements
Businesses often sell for a multiple of their most recent year’s net income or gross profit. As a result, any increases that you record in your final year — for example, from cutting unnecessary expenses or increasing billings — could pay off exponentially.
3. Consider a gradual transition
Assess the possibility of remaining active for a year or two in the business after you sell it so that the new owner can better leverage the goodwill that you have built up. This may increase the selling price and help you ease into retirement.
4. Should you sell to your kids?
A business in your kids’ hands could well retain all of its goodwill value. However, it’s important to make sure that your kids are willing to take on the responsibilities and have the necessary skills.
5. Invest the proceeds gradually
Whether you sell to your kids or a third party, remember to take your time with the proceeds. Gradually averaging into an appropriate mix of fixed-income and equity securities can help avoid buying at a market peak.
Talk to your advisor if you need help reviewing your options as a business owner. They can also make sure your financial plan, retirement plan and business succession plan are working together.