If you’ve been thinking about selling your business, you should put a solid sales plan in place even if you don’t act on it right away. According to Fred S. Steingold, business attorney and author of The Complete Guide to Selling a Business, planning in advance is ideal. 

“A business owner should start planning for a sale at least four years in advance,” he says. Early planning can enhance your business’s market value while also helping you determine your strategy for life after business ownership.

Business owners can become motivated to sell for many reasons — among them, approaching retirement, a lucrative buyout offer or a desire to try something new. Before entering negotiations for a buyout, Steingold suggests discussing the following questions with your Financial Advisor:

• What will I do with my time once I stop working? 
• How will I replace my paycheck? 
• Am I interested in staying on as consultant or employee after selling? 

Once you answer these questions, it’s time to prepare your company to get the best price, consider timing and choose the sale options that support your life goals. “Evaluate your business from the perspective of a potential buyer,” suggests Steingold. “This lets you make changes to increase the value of your business, and if necessary, consider postponing the sale to get the best price.”

Maximize the Value of Your Business 

To potentially increase the value of your business, examine how expenses balance against revenue. Reducing costs is imperative, even if it means lowering your salary and closing expense accounts. Then determine how to generate the income necessary to show two years of increased profits prior to the sale.

Other value-enhancing strategies include:

• Securing a long-term lease or lease-renewal option if your business site is critical to your bottom line 
• Maintaining the premises and equipment 
• Tightening your credit standards and severing ties with weaker accounts 
• Creating a list of long-term contracts or clients that underscore your market strength 

With these strategies complete, it’s time to work with a broker to determine a realistic price for your business. To do this, you’ll use an industry formula, your average earnings and the recent sale prices of comparable businesses.

Choosing the Best Sale Option 

How you structure the sale determines how you’ll receive the proceeds — and pay taxes on them. Some options and considerations include:

A complete buyout, which may allow you to reinvest the proceeds or use them to start a new business venture 

Accepting an “installment” buyout with scheduled payments, which can provide income over time 

Agreeing to a lower price, plus a percentage of future profits, which splits risk between you and the buyer 

Agreeing to consult or work through a transition period, which may be important if your business depends on service relationships 

Selling an interest in the business, which lets you defer capital gains taxes 

If you accept an “installment” purchase, keep in mind that it is important to check the buyer’s credit history and be realistic about his ability to succeed in providing future payments. Steingold suggests protecting your interests by retaining shares in the business, with ownership reverting to you if the buyer defaults; requiring the buyer to secure the purchase with other assets; or requiring the buyer to provide an acceptable guarantor or co-signer.

Timing Your Sale 

Ideally, an owner wants to sell a business when the demand is high and a good price can be obtained. “The best time to sell your business is in a strong economy, when the business is on a growth curve (showing increasing profits each year) or when you have done everything you can to maximize its value,” says Steingold.

Additionally, you should work with your Financial Advisor, attorney, tax advisor and business broker to coordinate the sale’s timing with your long-term financial strategies. Meanwhile, as you wait to sell, work with your advisor to update your business plan periodically, responding to changes in your marketplace, tax laws and your income needs.

Together, you and your financial advisor can (and should) discuss: 

• Selling your business when the time is right for you 
• Investing proceeds 
• Funding a new business venture 
• Developing new assets to meet estate planning goals  

This article was written by Wells Fargo Advisors and provided courtesy of Scott Hunter, Senior Vice President – Investment Officer and Greg Wright – Financial Advisor in Albany, Georgia at 229-436-0501.  For information on other topics or how we help clients go to www.scotthunter.net 

Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences. 

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