The endgame for many entrepreneurs is that day you finally cash out. Here are three keys to maximizing value when you sell a small business.
Most business owners plan to get out within 10 years according to a recent study. So if you want to sell a small business there are 3 key areas to consider according to Forbes contributor, Senior wealth strategist at CICB, Catherine Schnaubelt.
How to position your small business for max value
This starts with a full review of your financials.
Many small businesses, Schnaubelt explains, receive unexpected offers so it’s always best to be prepared whether you planned on selling your business or not.
Once there’s on offer step one is taking an honest assessment and then disentangling your personal and family finances from your firm. Many businesses have loans to close associates or family and these need to be resolved.
Your receivables also need to be current and in accordance with Generally Accepted Accounting Principles or GAAP. But Schnaubelt says an outside audit is also useful to make sure the books are airtight.
Finally, all contractual obligations need to be looked over and current, especially regarding key employees.
This is an opportunity to improve your “corporate governance” or HR policies. If you were operating informally in some areas, this is the time to nail down what exactly is owed to crucial team members. This is essential to potential buyers.
Finding wealth opportunities
When you sell a small business you also have to ask yourself what you’re going to do with all that cash.
Financial windfalls are great but liquidation can also be a leaky process. Passing on part of the proceeds to partners, investors or family is also an undertaking.
For this last concern, Schnaubelt recommends setting up a trust to minimize the tax impact of moving equity to a loved one.
Overall this transaction needs to be structured to maximize your long term wealth and minimize your tax burden. All this takes careful consideration and lots of outside expertise.
Seek out the right advice
Cashing out on a life’s work can also be an emotional process that impairs your judgment and ultimately costs you money. This is why Schnaubelt recommends assembling a team of experts that include the following:
– a wealth management advisor
– an attorney
– a business accountant
– an insurance pro
– a banker or trust officer
– a reputable business appraiser
Getting proper value when you sell a small business is complicated work. Schnaubelt even recommends hiring a psychologist if navigating complex family dynamics is necessary to achieve liquidation.
Beyond these basic tips, she also has a free white paper series for a more in-depth look at this crucial process.
The bottom line is don’t underestimate this task. Selling a small business is often the fruit of a life’s work. You want to make every ounce of that count.