Plan for the (Almost) Inevitable
Sooner or later, almost all business owners think about selling their business:
- Startups are often motivated by get-rich-quick visions of the next great thing.
- Serial entrepreneurs may get bored and want more time and cash for a new venture.
- Strategic investors may decide to look for greater returns in a different business.
- And long-time owners often view their business as a primary source of retirement funding.
Every business owner can benefit from careful planning leading up to the sale. For example, if a business is taking full advantage of its legal tax deductions, the company will have less net income. An owner looking to clean up the financials might want to taper back on deductions for several years prior to the anticipated sale. Although the business would pay more in income taxes, it would also show increased net income and thus be more attractive to a potential buyer.
In addition to maximizing value, business owners will want to think carefully about how to structure a potential sale. A straightforward sale to a third party typically involves selling either the assets of the business or the legal entity (usually a corporation or a limited liability company). More complicated transfers for larger businesses might involve creation of an employee stock ownership plan (ESOP), which allows the company’s workers to acquire the company’s shares.
Whatever your situation, it’s not too early to start thinking about the future. It’s your business. Make the most of it.