So you spent your whole life working on your business, and you’re at that point where you want to step back and enjoy retirement, and enjoy life without having to be day to day in the business. In today’s DueNorth Insight we’re going to take a closer look at how you should walk through stepping back and potentially even selling the business.
The first thing that is always really important when doing this, is to make sure your books and records are in order, to make sure that your financial statements are up to date, and that they’re accurate. From there we’re going to go to the second step, valuing the business. It’s important to understand how a business is valued, the multiples that are used in the industry, and what to expect when it comes to a sale.
Once we have that valuation done, we’re going to move to the third step – the third step is planning for this sale. And really it’s the most important step. Most of us have an idea of what our business is going to sell for, we also have probably kept up with our books and records. So how do I plan for selling the business? The biggest thing I tell the clients that we work with, the longer you have time to plan, the better we can plan. One of the biggest reasons for that is because we can plan ahead for tax loss harvesting.
At some point you’re going to have a big sale. Usually it’s going to be meaning your income is going to skyrocket in one single year because of the sale of the business. Well if we’ve been planning ahead, we can minimize that tax impact. We can also look at how to sell the business, maybe instead of selling it and taking all the money up front, we take it over one, two, three, four, five years. But we need to evaluate those situations, we need to take a look at it.
Another thing that impacts how we’re going to sell the business is, are we going to sell it on our own or are we going to hire someone to advertise and market and sell it for us. Because that’s going to have an impact. A typical broker selling a business is going to take 10% of the value of that business and it’s going to go into their pockets. It’s going to leave yours right off the bat. And the tax impact, that we kindof discussed already is a big one that is easy to overstate. If you’re used to paying taxes in the 12% or 22% tax bracket, it might be easy to forget that selling a business for $1 million or $2 million means your tax bracket is going to go way higher than it has been. Whether that’s under ordinary income because we’re capturing depreciation over the years, or whether it’s the capital gains rate that grows from 15% to 20% once you start going up the ladder. That’s what we need to evaluate, and that’s what you need to be looking at. Working with somebody who does that day in and day out, is probably going to be a huge advantage when it comes time to sell your business and put the most dollars in your pocket at the end of the day. That’s today’s DueNorth Insight.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.