Summary:
A 927 word follow up article outlining the valuation of a small business in anticipation of its sale. Please also see Life in Tahiti Part I.

Details or Sample:
In the first article in this series, we talked about planning for your eventual exit from your business. This month, we will look at putting a price tag on it.

Business valuation is not an exact science and depends substantially on the type of business and assets you have. There are many expert business valuators who can help you nail down a value when you’re ready to pass over the reigns. However, having at least a sense of the value that you are building in your business is important.

You know that your business is worth at least the fair market value of the assets minus the payout value of the liabilities. If you have been working to systematize and grow your business, it will be worth substantially more. Undervaluing your business can have serious consequences on your retirement lifestyle, so it pays to do your homework and get professional help.

Getting ready for the sale

There are many things that you will have to do before putting any exit strategy in place, especially if you will be selling to outside buyers.

The first thing that you need to do is to assemble your team of experts. This will most likely include your accountant, lawyer, financial planner, and perhaps a business valuator and broker. Make sure that all parties know your goals for the buy out and that they are all working in tandem to meet those goals. Your accountant will help you to steer through all of your choices surrounding how to structure the sale and how to take payment. There will be practical decisions as well as taxation implications. Your lawyer will help you to structure the legal side of the sale and will help you interpret offers as they come in. Your financial planner will look at your post-business goals and will help you determine what income level you will need in order to maintain your desired lifestyle (margaritas can get expensive!).

Your accountant will most likely recommend that you prepare some financial information for the pending sale. Much like a real estate broker would suggest to you that you put a fresh coat of paint on your house and maybe plant some flowers outside before bringing buyers through, your accountant will recommend that you show potential buyers of your business what it might look like once they take over. You will have run your business in a way that suited you. You may have had the goal of minimizing tax or employing your family. These decisions might not be made the same way by the new owner. Your accountant will get you to normalize your financial statements; in other words, recast them without all of the discretionary activity. If your spouse is on the payroll, remove the expense related to that. If you pay yourself high dividends, restate the financials without them.

Purchase this content for your website...

Pricing:
Usage:	$28	[Add to Cart]

Downloads: 0
Written by: Angie Mohr
Available File Types:Text
Words: 927