When are you going to retire? Do you have enough money to retire? How much money do you need to get for your business? Who will run the company when you are gone? Let me list some ideas and share some thoughts with you regarding some ideas you might want to consider.
Everyone is going to retire from their business, the only question is when. Based on what I’ve seen some of my clients do, it appears that the best time to sell your business is when you had a great year and made at least a 10 percent net profit on your gross sales before taxes. When a company does that, a lot of owners change their mind regarding selling it. Their logic being, “why would I want to sell when the business is doing well!” So, by that same logic, do they sell when the company is doing less than well? If that is so, why would a buyer want to buy a less than good company?
Basically, there are three options open to the owner(s):
1) Sell the company.
As owners approach retirement age, either physically, mentally or both, they begin to want to put some options together regarding what they want to do with their company. This is an action that should have been started at least 3-5 years earlier. If the owner has done their homework in order to sell a company, the first realization they come to is that the business must be worth something to another person, not just themselves. There must be a buyer that sees some value in the company in order for a sale to take place. The potential buyer will determine whether or not the company is really worth anything and whether or not the company will fit their needs. The potential buyer must then start down a long decision path in order to decide several things:
a) Can they run the company with their skill set?
b) What price are they willing to pay for the company?
c) Can they do as well as or hopefully better than the existing owner has done?
So what are some of the things people look for in a company that they would consider buying? If you buy a company, you might also want to consider what you can sell the company for in the future. The potential buyer will look very hard at what the different parts of the business are worth. The different parts could be assets such as the facility that the business is working out of, any existing computer systems, existing software systems, job equipment, what employees will stay if the company sells, what is the current book of business, how much cash flow comes through the business, and what future growth potential with the new owner in control is currently untapped by the existing owner? How long will it take the new buyer to repay the cost of purchasing the business? How will the purchase be cash-flowed by the new owner? Will the existing owner offer financial assistance to the new owner to enable the new owner to buy the business?
2) Gift the company.
Usually the recipients you might consider gifting the company to, depending on what your goals are, will be either family members or trusted employees. One of the opportunities in this process is to confirm that the receiver of your gift has the money and the needed skill set to operate the company in a manner that they will be comfortable doing. Most owners need to consider ALL of the ramifications of taking this course of action.
3) Close the company.
This is a rather straight forward process:
a) You stop taking on new work
b) You complete all existing jobs
c) You release all remaining employees
d) You sell off all of the company’s remaining assets.
The key to you as an owner getting what you want and need when you decide to get out of the business is both advanced planning and timing!
Wishing you good business and good profits!