The pandemic has made a lot of people take a second look at their lives, including when (and how) they plan on transitioning their business.
1. START TAX PLANNING… EARLY!
If you’re even thinking about selling, it’s highly imperative that you talk to your accountant about tax efficiencies. There are lots of tax implications involved in the sale of a business, and some require plenty of advance notice.
The most significant of these is the Small Business Capital Gains Tax Exemption, which currently applies to the first $892,219 of proceeds resulting from the sale of shares of the business. This applies to every eligible shareholder, which might include your spouse, kids, other minority shareholders, perhaps even a loyal business manager who’s been part of the company for decades and who owns shares.
2. ON THAT NOTE, PRIORITIZE MAXIMIZING REVENUE OVER MINIMIZING TAXES
It’s easy to fall into a pattern of minimizing your taxes, rather than maximizing the business’s profits.
Besides being questionable from a tax point of view, this can disadvantage owners as they prepare to sell… Obviously, a business that is growing and has higher profit margins is more desirable to potential buyers. Profitability is the biggest driver for valuation.
3. BUILD A MANAGEMENT TEAM THAT DOESN’T DEPEND ON YOU
We get it, you’re the boss and you’re used to running the show. However, it’s a liability when it comes to selling: If the business hinges on the inside knowledge that only a couple of people have, the value will likely decrease (and will make it more difficult to run) when those people leave after a sale.
Buyers are going to be more attracted to a business with a strong, nimble management team that can run the company even when the owners aren’t around, and who can navigate during a transition.
If you’re thinking about selling, start backing away… slowly! Begin to unload the typical tasks that you hold onto to your management team. Begin holding training sessions. Begin giving your team that you trust some more responsibility. The fact of the matter is, you likely wouldn’t have hired them if you didn’t think they could handle it…
4. BUILD BETTER SYSTEMS
The more you can automate your business’s systems, the better. Ideally, you would be able to run your business from your laptop anywhere.
It’s recommended that you invest in enterprise resource planning and customer relationship management software and systems. The easier it is to collect, access, aggregate and analyze data, the more appealing your business becomes to potential buyers.
5. HIRE AN ADVISOR
Selling a business is a staggering amount of work, nobody will hand over a million dollars with just a handshake or a pinky promise.
A typical business sale requires hundreds of hours of due diligence, preparation, information assembly, technical analysis and negotiation. With a team often working full-time, and usually in confidence while the business runs regular day-to-day operations, a business advisor is extremely valuable during the sale of a business.
Not only does it make dealing with the major details easier, but it also allows you to have peace of mind in knowing your advisor will work nothing short of a miracle to ensure they find the best buyer for your business.