Business value. Do the due diligence required to determine the value of your business. Your decision whether or not to sell may depend on the potential selling price. Although valuing a closely-held business is not an exact science, obtaining a formal (or even an informal) valuation of your company provides a benchmark value that you can use in negotiating a sales price and an approximate amount that you can expect to receive.
Financial planning. Know how much money you will need for retirement. Many successful business people retire without a plan for financing their retirement or managing their assets. Many retire too early and end up with much less in their retirement fund than expected. Deal with this issue by obtaining a business valuation and consulting a financial planner.
Security. Make sure as much of the sales proceeds as possible are secured. The sales price may be more than you dreamed of, but if you end up actually receiving only a fraction of it, your comfortable retirement will be in jeopardy. To the extent possible, the sales price should be paid in cash or secured by assets of the buyer and/or personal guarantees of individuals who have assets.
Be emotionally prepared. Turning their baby over to someone else is the most difficult and painful part of the transition for many business owners. They can’t deal with the thought of their company being broken up, or of loyal, long-term employees being laid off. In many cases, staying on as a consultant while new owners change the company is not a good situation. However, staying on to transition the company to the new owners is the best way to ensure that the company remains profitable.
Retirement planning. Have a plan for how your time will be spent in retirement. Hobbies can fill only so much of a retiree’s newfound free time. If you’re not certain this is the right time to get out of the business and retire, sample retirement by taking an extended vacation or even a leave of absence. The decision to cash out shouldn’t be made under stress or in the heat of battle. It’s better made after being away from the business for a period of time. If you can’t wait to get back to the office after two weeks of vacation, this may not be the right time to sell the business and retire.
Family matters. Don’t forget to consider the possibility of transitioning your business to a family member. For many business owners, the most difficult decision in cashing out is who to sell to. Determine whether children or other family members have a serious interest in taking over the business and if they can finance the purchase. The owner has to make the hard decision as to whether family members are capable of running the business successfully. Good communication is essential at this stage.
Expert help. The process of cashing out is a series of important decisions involving financial planning, estate planning, business valuation, family relations and many other considerations. Qualified experts not only help in planning and decision-making, but also in finding and qualifying potential buyers. Whether you decide to cash out or opt to continue your business, make your decision on the basis of a sound assessment and a well-thought-out plan.
Brian Simmons is a member of Doeren Mayhew’s Corporate Finance and Strategic Services Group. He is both a Certified Public Accountant and a licensed attorney. Doeren Mayhew, located in Troy, Michigan, is a regional accounting and consulting firm that provides a wide range of professional services to middle-market companies. Contact Simmons at (248) 244-3118 or email@example.com.