Posted by Ralph Sklar @ 11:00am on September 9, 2016
Some people run their businesses for maximum income and plan to close it when they retire. Others are focused on maximizing the value of the business and plan to live on the sale proceeds when they retire. Most of our clients are in the second group. If your small business is an important component of your retirement nest egg what are you doing to maximize your odds of success? Are you getting periodic professional valuations so that you know what to expect? Are you grooming someone on the inside who might take it over? Are you focusing on positioning the ‘levers of value’ so that it will be as attractive as possible to an outside buyer? Many people think that revenues or profits are the most important factors in the value of a business, but professionals know that the profit/price multiplier depends largely on a buyer’s perception of risk. It is important to make your business model as transparent as possible. Tie your key employees to the business to reduce the risk that they will walk out the door when you do. It is important to find a way to incentivize your most important profit makers to stay even after you are gone. And don’t neglect to build up your own financial wherewithal. Sharp buyers are pretty good at smelling blood in the water. You will get discounted offers if they know that you need to sell. But if a buyer looks at your business and really feels like she understands it and that it won’t be that hard to operate, if she sees key employees who are committed to staying on, and if she knows that you have personal financial strength, she is more likely to make a premium offer. In future blogs I plan to have guest experts discuss each of these issues more deeply. Feel free to contact me now to continue this discussion.