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Many businesses will change hands in the coming years. Just as the workforce is aging, the ranks of business owners are grayer on average. A lot of owners are mulling how and when to sell.
Note the basic demographic situation: A quarter of business owners are over 60, a figure that will grow once all of the members of the baby boom generation reach retirement age. Lots of them intend to sell relatively soon… as many as half aim to do so in the next five years, according to one recent survey of business owners. But relatively few have an exit plan in place. Just running a business is hard work. Most owners are too busy managing the day-to-day operations to work out the details of how and when they’ll sell. Unforeseen events can complicate things… an untimely death, a divorce that splits ownership of the business, a sudden economic downturn, etc. It pays to plan…make decisions now. Here are some key issues to think through:\
What’s your timetable for selling? One exit adviser, Ennis Legacy Partners, recommends five years of planning to ensure the best chance of a successful sale.
Do you need the cash up front?If so, a sale to an outside buyer makes sense. If not, a gradual sale to top employees or family members in a “rent to own” process could be suitable, though you risk the buyers’ running into financial problems later on.
Do you have certain values you care about, such as maintaining the culture, reputation or location of the business? Those take more time and planning to protect.
How do you value the business? Small businesses generally sell for 40% to 80% of annual revenue or two to three times cash flow…higher in the case of larger firms. Remember that the firm might not be worth as much without your personal expertise. That’s also a reason to delegate more responsibility to subordinates who will be there
after you leave: You’ll get a better price if the buyer has confidence in top lieutenants.
Article from The Kiplinger Letter May 24, 2019