According to the Chamber of Commerce, only 20 percent of small businesses transfer to a new owner successfully. This has important implications for owners who have on average 80 percent of their net worth tied up in their businesses.
Marc Tepper, Founder of Strategic Wealth Partners, urges business owners to take these steps before embarking on a sale or transfer of your business:
1. Value your business. Use a professional with specific expertise in your niche to develop a realistic value. Businesses with more than $5 million in revenues are considered especially attractive and can command higher valuations. If your business isn't worth what you expect, then grow revenues to increase its value.
2. Start planning your exit early. If you have a long-term strategy to sell, know that you need to have a stand-alone business that can operate independently of its owner. Nobody wants to a acquire a job; they want to buy a company.
3. Document everything. Written documents of systems, operations, procedures are especially valuable. Buyers don't want to start from scratch, and they can't download what is in the owner's brain.
4. Take taxes into account. Taxes could take a big bite out of your sales proceeds so make sure you plan for this and do your best to minimize your tax liability. One strategy is to fund your retirement accounts to the maximum in the year you want to sell. This is a way to take cash out of the business and shelter it from taxes.
Learn more at Fox Small Business.
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