1. Calculate your number. How much do you need to sell your business for? This number is the difference between the amount of money you need in retirement and the amount of money you have now. This number can be a guideline for you when you are evaluating your options. Keeping this number in mind can prevent you from working longer than you need to or running out of money in retirement.
2. Purify your operating company. A buyer doesn’t want to pay for your personal vehicle, excess cash or any other personal item you’re running through your company. Structures such as a holding company, insurance policy or Individual Pension Plans can be used to remove excess cash and other items. Talk to your accounting professional to determine the best fit for you.
3. Figure out what you’re going to do in retirement. No matter what age you retire, they say that the first 10 years will be the best 10 years. It doesn’t make sense to spend the best 10 years of your retirement planning for retirement. Figure out what you can be passionate about and can see yourself doing for extended periods of time to ensure that your retirement is a happy one.
4. Update your will and Unanimous Shareholders Agreement (USA). I often hear from business owners that they haven’t updated their will or USA in over 10 years. The most common thing they tell me is that they know it’s important but haven’t gotten around to it. I suggest you review your will and USA at least every three years, or more often if there are big changes in your life. Life can often throw unexpected twists our way and if we’re not prepared, it can have a devastating effect on our plans. You do not have time to update it when you go through an unexpected event such as death or injury. Update your will and USA to ensure you leave a positive legacy, not a headache.
5. Evaluate options for corporate structure. With enough time and forethought, you may benefit from significant tax savings by structuring your business in preparation to sell. One example is for a family business to take advantage of multiple capital gains exemptions ($800k in 2014) by using a trust to hold multiple share classes of the company for each adult in the family.
6. Know who will be taking over your business and if they want it. You probably have an idea of who you want to buy your business, especially if one of your children works with you. Have you talked to them about it? Do they actually want to take over your business? Nothing is worse than setting up your whole business to be sold to a certain person then finding that the person doesn’t want to or isn’t qualified to run the business. Communication is the key. Make sure that if you’re doing an internal sale to employees or children that you’ve had frank discussions with them and other key stakeholders. If you give yourself enough time, you can find other options or train your successor to give them the skills they need to be successful.
7. Assemble your team of professionals. No single person can prepare to sell a business on their own. Your team should be working together towards the same objective, which is making sure you, as the owner, are able to accomplish your goals. Your team should include an accountant, a lawyer, a business broker, an investment advisor, an insurance professional* and a business valuator. For family businesses, a family facilitator is often helpful.
8. Update your estate plan*. This goes along with step four. An estate plan* provides a strategy on how you will act out your final wishes. The earlier you start planning, the more options you have. A carefully considered estate plan can mean a significant reduction in taxes and other expenses and reduce the headaches your beneficiaries face when you die.
9. Do the one year test. If you were to step away from your business for one whole year, what would the business look like when you got back? If you can say with confidence that your business would still be viable and— even better!— would be making more money, you are well on your way to having a saleable business. If you can’t say that, you will have to work on things such as a strong management team, internal processes and employee engagement. Anyone buying your business will want to make sure that it will still be profitable without you there.
If you are preparing to sell your business, I can connect you to tax and estate planning* professionals who can facilitate the preparation process. I can also provide insight into how this decision can impact your overall financial plan.
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Guest Author: Eric Brown