By FPA member Marina Goodman, CFP®
Last Updated: November 15, 2010
As a business owner, you may be too busy running your firm to think about selling it. However, without proper planning, you may end up selling for much less than your business could be worth, especially if you must sell under duress. This is particularly true if you become incapacitated or die and your spouse or children aren’t prepared and have to sell it at a fire-sale price.
Getting top dollar for your business can take several years of planning. The following actions will make your business more profitable now and more attractive to prospective buyers — and also help protect your family.
- Make yourself dispensable. The more indispensable you are, the less your business is worth to someone else. If the entire operation depends on you, it won’t have much value when you’re no longer in the picture. Compile all relevant information, including a comprehensive client database, a list of preferred vendors and procedures. Make it as easy as possible for someone else to step in.
- Document profitability. Your accountant should prepare annual financial statements with footnote disclosures. Track the key profitability benchmarks relevant to your industry and see how you stack up. If your business is falling below the benchmarks, talk to your adviser and develop an action plan to improve your financials.
- Designate an advisory board. The board should consist of an insider, a lawyer, and an accountant that can act on your behalf to negotiate a sale of the business in case you become disabled or die.
- Write a succession plan. Don’t wait until you have an accident, heart attack or stroke to designate a successor by power of attorney. As the business matures, groom a younger partner or employee to lead, so any transition becomes seamless to clients and potential buyers.
- Get to know a business broker. Meet with one every few years to get an update on the market for companies like yours. Questions to ask are: How long are firms taking to sell? Who are the buyers? What financial metrics are they focusing on? What is the going rate for my type of firm? What are the issues that have impeded sales of similar firms or reduced their value?
- Buy insurance. Personal disability and life insurance will help support your family and give them breathing room in case of your disability or death. Business overhead insurance (a specialized type of disability insurance) will help pay the expenses for running your business. If you have partners, life insurance in a buy-sell agreement will help your partners buy out your share of the business.
Getting your affairs in order sooner rather than later will help ensure a secure future for you and your family.
FPA member Marina Goodman, CFP®, is an Investment Strategist at Brinton Eaton in Madison, N.J.