What’s Your Business Worth?

Almost eight million Baby Boomers are expected to exit their businesses in the next few years as they reach retirement age. Unfortunately, they may not fare well for three reasons:

  1. The sheer volume of businesses for sale is expected to cause downward price pressures.
  2. Statistics show that, even with good market conditions only 2 in every 10 owners will complete a successful sales transaction. The rest will sell off in pieces or simply shut down.
  3. And finally, many boomer owners have failed to establish retirement accounts, instead investing a large percentage of their profits back into the company.

And, there-in lies the perfect storm… With downward pressures on pricing and a low chance of completing a successful transaction, boomer business owners may be facing their biggest financial test, just as they had hoped to enjoy their “golden years.” So, what should owners do to avoid this trap? Plan, plan, plan. In fact, it’s never too early to start looking at all the factors that make businesses more attractive to buyers and in turn, drive value. The Time for Valuation is Now Maybe you’re thinking, “I’m not ready to sell.” But selling your business isn’t as easy as turning off a light switch, especially if you’re hoping to get top dollar. There are a lot of factors that need to be determined when planning the perfect sale. And, your readiness to exit is just one of them. If you’re planning to transition in 1 to 5 years, the best place to start is by verifying the value of your company in today’s market. You probably know the approximate value of your house, cars, and other important assets. Doesn’t it make sense to know the value of your greatest asset – your business? Once you know what your business is worth, you can formulate a plan to systematically improve that value and best prepare for a sale. The key is not to wait too long when your options are limited or circumstance force you into actions you regret. Ways to Sell After You Know Your Value Once you know the value, you can determine what type of sale might make the most sense. Here are several options to consider:

  • Employee Ownership – This model can help keep your business locally-owned and managed. It also provides your hard-working employees and/or management team with a great opportunity. If your teams and locality are important to you and your business’ reputation, this can be a rewarding choice in the long-run.
  • Get Acquired – Acquisition can greatly benefit you and the business that acquires yours, especially if your business can help the buyer’s break into a new market or increase their own valuation. To make the most profit from an acquisition, those buyers will be your sweet spot; the big fish might not be willing to pay as much.
  • Sell Your Assets – Asset buyers are looking to buy your physical equipment, facilities, customer lists, trademarks, and the business’ reputation. This option is more appealing to buyers, who don’t assume legal responsibility for the business, than to most sellers because if the business is sued, you could still be liable even after you sell.
  • Sell Your Stock – Selling your stock tends to be the better option. Instead of selling only your assets, you’re selling the entire company, legal responsibility, and all. However, it could be harder to find a stock purchaser if your business is on the smaller side. You could also consider an employee stock-ownership plan.

Bottom Line If you’re a boomer business owner who is counting on the sale of your company to fund your retirement, it’s probably a good time to get your business valuation done and start planning your exit. The market for small businesses is changing and you want to be prepared if you hope to achieve financial security for you and your family throughout retirement.