By the time you are ready for retirement, the mistakes you have made—both minor and major—have taught you valuable lessons that still stick with you. If you are a business owner, however, one experience that you may still have yet to encounter and learn from is selling your business. Wouldn’t it be nice to go about things the right way without first paying the price of an unexpected mistake?
Fortunately, many business owners have come before you and their business attorneys have been right alongside them to provide experienced guidance. If you plan to rely on the sale of your business to provide for your retirement, make sure you heed their advice.
Business owners often have a large portion of their personal wealth tied up in their business. That’s why it’s so important for business owners to engage in some business estate planning to be able to transition into retirement. These are the common mistakes that business owners need to avoid when preparing to sell their business:
The Business Is Dependent On You
The effort you have put into your business could move mountains. You powered through every challenge and have come out the other side the better for it. Who can say what would have become of the thousands of lives you and your business touched without your dedication?
But did you prepare your business for your no longer being there? If you left yourself as the key lynchpin without establishing a structure of people and protocols to hold it all up once you have stepped out the door, what value is there for a buyer?
Make sure you delegate responsibilities to managers well in advance of putting your business on the market. It will not only create confidence in your buyer that they can hit the ground running, but it will take some of that extra work off of your shoulders, as well. Business buyers don’t like it when the business’ success is tied to its owner. The best thing to do is to delegate responsibility to multiple company managers. Not only will it make your business more attractive to potential buyers, it will make the transition to the new ownership easier when it comes time to retire.
Not Thinking Ahead
If you are looking to sell by the time the decade is out, give serious thought to what advantage you might get from selling sooner than later. Even at a lower valuation, it could prevent the bite of a much larger capital gains tax. Keep in mind, too, that if part of the sale is structured so that you stay on as a consultant, the portion of the buyout for consulting fees counts as ordinary income and reduces the amount of your capital gains tax bill.
Not Having a Realistic Valuation
You can’t sell for what a buyer won’t pay. Basic your retirement plans off your ideal asking pricing is unlikely to work out exactly the way you would like. Consider hiring a professional who can not only provide a realistic valuation of your business, but may make you, and your buyers, aware of sources of value that you had not even considered.
Considering Just the Money
Business owners are so often forced to focus on their bottom line that sometimes it seems like the money is all that’s important. When selling your business, however, make sure that you consider all factors of an offer. One thing in particular that may help you avoid a huge mistake is to look closely at the buyer’s plan and ability to finance the purchase.
Not Keeping Negotiations At Arm’s Length
No matter how good your cousin’s poker face is, a deal is best negotiated by a professional. Rather than dragging the deal down by relying on friends or family member, a business attorney will help you get the best result they can without the baggage of family ties. Remember to shop around and vet your legal counsel thoroughly—your business and your retirement are worth the effort. Inquire about their negotiation strategy, time to close, and what structure they would recommend for a deal that would keep other family members involved in the business.
Not Making an Exit Strategy
In order to bring about a smooth transition, your personal retirement planning deserves a discussion with your attorney. A Creative Business Lawyer® is particularly skilled at this unique mixture of business law and estate planning.
If you’re a small or mid-size business owner, call us today at 612-206-3701 or reach out via our online contact form to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will give it to you for free.
Image Courtesy of Stuart Miles | FreeDigitalPhotos.net