Atlanta Financial Blog
Business Owners: Beat the Odds by Preparing Your Company for a Successful Sale
December 17, 2019
When talking with my clients who own businesses, many of them have a goal to sell their business for full value so that they will be able to fund the retirement lifestyle they desire, take care of their family, and support the charitable intentions that are important to them. Unfortunately, many owners will probably not be able to sell their businesses when they are ready because they are not taking critical steps needed toward a transition or toward getting the full value of their enterprise, even though many of them have 80-90% of their financial assets/net worth based in the business itself. 1 The fact that most business owners are not taking the critical steps to prepare their businesses for sale is supported by a recent study conducted by the Exit Planning Institute that showed that only 20-30% of the businesses that go to the market actually end up selling.2 If you are a business owner and your plans include selling your business sometime in the future, what can you begin doing today to enhance your business’ value and make it more attractive to a future buyer?
Enhancing Your Business’ Value
In many ways, preparing to sell your business is like getting ready to sell your house. In order to get the best value from selling your house, you first need to get professional opinions on the value of your house. Then, you need professionals to identify what would make your house more appealing to potential buyers and also identify and fix any issues with the house that need attention. Finally, many real estate professionals recommend “staging” the house to make it more attractive and appealing to potential buyers.
If you are a business owner, and you are relying on the value of your business to fund many of your important financial goals, what can you do to help your business be more valuable and more appealing to a prospective buyer so that it is sellable at full value when you are ready to sell it? By asking that question, and then working with a team of qualified professionals in answering that question and determining the steps to take, you will be able to implement a plan to maximize the value of your business, and your business should be much better prepared for sale.
For most business owners, it is best to begin this process years before an anticipated sale because it often takes time to implement strategies to fix issues within your business. It also takes time to implement strategies that may greatly enhance your businesses value to a potential buyer. One of the most important drivers of the value of your business is how replaceable you are as an owner. The less involved you are in various aspects of the business and the more that those areas are handled by key employees, the more the value of your business will increase. Similarly, having years of clean and accurate books and good financial controls, taking a critical eye to things like your company’s human capital, compensation and retention plans, considering additional business lines, and reviewing your physical plant and inventory for obsolete or inefficient assets, among other strategies, can improve the value of your business.
Realizing the full value of their business is a vital part of many business owners’ long-term financial goals and plans. Without a plan to enhance the value of your business and make it more appealing to prospective buyers, your chances of being able to sell and realize full value are much smaller. If you are a business owner with a goal of someday selling your business for full value, it is important to begin now focusing on the value drivers of the business and taking those critical steps toward enhancing your business’ value and appeal to prospective buyers. Please feel free to contact your Atlanta Financial Advisor if you have any questions or if we can help you in any way regarding your business.
1Forbes.com Feb 5, 2017 “Study Shows Why Business Owners Can’t Sell When they Want to” Mary Ellen Biery, Sageworks Stats
2SaltareSolutions.com June 11, 2019 “Why Can’t Business Owners Sell Their Companies?”
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019. With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare. However, some of the changes will be significant. I have tried to highlight what may impact the majority of our clients and readers.
The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70. The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner. I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.
When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.