Small business owners often do not understand that selling their business takes a lot of planning. There may be bumps along the way.
It’s hard for small business owners to objectively assign a value to their business, as examined in Southcoast Today in “Retiring after you sell your business? It may not be as simple as you think.”
The simple answer is that it’s worth what someone else is willing to pay for it.
However, there are many factors that need to be considered when valuing a business. They include the age of the business, revenue, income, stability of revenue and income, growth rate, industry, management, systems and procedures, key employees, employee turnover, the economy and more.
There are also multiple methods used to value it, such as Book Value, Comparative Business Sales, Multiple of Discretionary Earnings, Discounted Cash Flow and Asset Valuation.
In many instances, the business is the single biggest asset owned by the owner. It may represent the majority of his or her net worth. If so, the owner should consider how he or she will monetize the value of the business, when it comes time to retire. They also need to protect the business against risks that could close it.
If the business is the owner’s biggest asset, how is she going to be able to retire comfortably?
There should be a succession plan in place to clarify whether the business is to be sold to an outside third party, to company employees or to the owner’s children. The owner will also have to possess enough other non-business assets, if it’s to be left to his or her children
In a family business, there could be one child who worked in the business, while the other children didn’t. How will this be handled in estate planning?
Selling a privately held business is a complex undertaking with many moving parts. An experienced estate planning attorney, working in concert with a CPA who has credentials in valuation and forensics, will be able provide you with a clear picture of the value of the business, align the sale of the business with your family dynamics and create a plan for the future that addresses retirement planning, succession planning and estate planning.
Reference: Southcoast Today (March 2, 2018) “Retiring after you sell your business? It may not be as simple as you think”