Boost the Sale of Your Business

Selling your business can be nearly as exciting as building it. But there’s a lot to consider. In some cases, the emotional aspect of selling what you’ve created adds a new level of complexity. The best way to rise above the distractions is to focus your attention on the elements that matter most:

1. What is your business worth?

Valuing your business is an important prerequisite to a sale. While there are multiple approaches to valuation, it’s safe to say that you’ll need to have the latest financial statements and a firm grasp on the relevant figures, including inflows, outflows, contracts, sales growth, assets and net income. Even more, you’ll have to know how your balance sheet and growth potential stack up relative to your competitors. Given the importance of having a reliable valuation, it’s a good idea to bring in an independent expert to help perform the assessment. That person will be in a better position to run the numbers and evaluate your company’s competitive position within your industry.

2. Where are its vulnerabilities?

Every business has its risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline.. Is the business largely seasonal? Will customer loyalty become an issue once the founders exit? Regardless of the specifics, it is important to see your business through the eyes of a buyer and be ready to address the challenges they’ll face. Even if you can’t fully eliminate riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline., you can decide how to best disclose it to potential buyers. Tackling the tough issues at the onset will lead to better conversations and a smoother due-diligence process down the road.

3. Is now the time to sell?

Selling at the right time can positively impact the value of a firm. For instance, is your prime selling season approaching? Have your revenues edged up in recent quarters? Suffice to say, you want your performance to indicate upside for the buyer. And the same goes for your industry at large: If your company made it through the pandemic with flying colors (and in the black) but your competitors are struggling, that may be a red flag for buyers. Finally, are you really ready to move on? Walking away from a business you’ve grown from the ground up can be difficult, and many owners struggle to let go. Selling before you’re ready can cause you to decide on a price that’s too high or turn down a respectable offer.

4. What is your tax exposure?

Selling a business should result in a substantial windfall for most owners—which means it’s crucial to understand your tax exposure. Generally, proceeds from a business will be taxed at the current capital gains rate of up to 20% for the highest earners. Increases to the capital gains tax rate are currently being debated in Congress, with some proposals going as far as bringing the cap gains rate in line with ordinary income tax, which peaks at 39%. (The latest versions of the bill don’t go quite that far.) There are ways to structure the sale to help mitigate the burden, such as spreading payments out into multiple tax years, but be certain to consult a tax professional to ensure you’re aware of all the implications.

5. What is your post-sale financial plan?

You know how much income your business generates for you annually. But do you have a plan to replace that income after the sale without taking on more risk than you’re comfortable with? If you are heading into retirement, the proceeds from the sale may be the bedrock of your savings. Regardless, have a financial plan that will offer you peace of mind and allow you to enjoy the next stage of your life.

If you’re a business owner and have questions, please don’t hesitate to reach out to your Adviser Investments wealth management team. We’re happy to help.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.