Business owners, like most people, generally do not have a written plan for their future. They under-plan their personal affairs even more egregiously than their business affairs at a time where planning is becoming more important than ever. Planning your exit begins with planning for your future life after the sale of your business. The following are some tips for how to begin the process.
- Conduct A Financial Needs Analysis: How much income do you require to support your current lifestyle? You need to understand and accommodate your current and near future financial needs. If you have a child headed to college, you may have significantly higher income needs over the next few years. A financial needs analysis will look at assets and liabilities as well as income and spending and should consider a range of ‘what-if’ scenarios. How much will you need to support your lifestyle after you Sell your Business? (In some cases, the answer may be more than you currently spend because you will have more time for travel and other expensive pursuits you have worked towards) This will give you a good sense of how much you need to realize from the sale of the business to support your desired lifestyle and future spending. This gives you a value target.
- Plan Your Estate: How would you like your assets distributed if you were to die prematurely? Would you want the courts to make those decisions for you? It is never too early to begin planning. In many cases, estate planning is an important part of financial needs analysis because you have to look at the needs of your family if you are not able to execute your business plan and meet your family’s financial needs in the manner you expected to. Early in an owner’s life, a simple Will may be adequate. As you mature and your business increases in value, other tax efficient strategies will become more important in your planning.
- Plan Tax Strategies: While we all have an obligation to pay taxes none of us has an obligation to overpay taxes. Tax planning involves looking at your potential personal and business taxes and seeking strategies to minimize them. If your tax situation is straightforward, your regular CPA can probably handle your taxes. As businesses get larger and more and more complex, engaging a tax expert to deal with complicated tax scenarios and avoid mistakes and penalties becomes a necessity.
- Analyze Your Assets: Even if you plan to run your business for another 20 years, knowing where you stand financially (both personally and in your business) is an important part of deciding how to move forward. That’s why it is important to know How to Value a Business. For most owners, the value of their business is 80 – 95% of their personal net worth and without being able to unlock that value their families would suffer a significant change of lifestyle. Although you may plan to work many more years, health issues, accidents, and the unexpected can and do happen. Business owners should arrange their finances and complete contingency planning based on the possibility of not being able to run their business as long as they had planned.
- Consider Hiring A Personal Coach. If you are planning to run your business for a long time, you may consider this premature but many owners who grow their businesses effectively find they have to evolve personallyas the business evolves. Most owners start with a great product or service idea and work hard to implement that product or service and to look for other products and services that their customers need. Once the business is established, owners need to begin building a management team with the same zeal that they displayed when they first built their business that will then help them when they encounter the bigger question, i.e., how to sell a business? This can be a difficult leap for many owners and a personal coach can help making that leap. At the same time, as the business grows, family demands are growing too. A personal coach can help through these stressful periods and can help prevent you becoming the victim of the tyranny of the urgent – your business.
Even if your exit is years away you should begin planning. A written plan will help you to weather the unexpected and provide you and your loved ones with a sense of confidence today and into the future.
Rocky Mountain Business Advisors is a business brokerage focused 100% on selling our clients’ business. As Business Brokers, we fathom it as our responsibility to apply a proven process to educate, prepare, and guide our clients through the sales process so that they can focus on managing their business while we focus on a successful sale. We bring a strong sense of urgency and tenacity to every engagement to realize the highest sales price in the shortest period of time. We bring buyers and sellers together. Contact us at 303- 474-5582, https://rockymountainba.com/, or schedule a free 15-minute consultation to learn more about the services that makes us one of the best Business Brokers in Denver.