How to make a plan to sell your private business| North Loop Official Blog
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20 Dec 2020

How to make a plan to sell your private business

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Starting a business can be challenging and would require one to work their fingers to the bone.
Right from making a business plan, figuring out finances to growth and expansion, running a company is easier said than done.

But, when you reach retirement age, you would want to reap the benefits of your hard work. The United States has over 28 million small enterprises, which make up close to 99% of all businesses. And out of these 28 million, just 17% have a befitting exit strategy in place.

After years of putting in your blood, sweat, and tears, hanging up your boots would be more than just an obligation, and this piece uncovers some suggestions to plan the future of your company post-retirement.

Be up to speed on how much your business is worth-

Some businesses are worth lesser than what business owners estimate, while others with successful business models can be worth way more than expected. Some companies, professional firms to be precise, run solely on the owner’s skills, expertise, and contacts, due to which it can have a low resale value.

The owner of a company first needs to estimate the net worth of the company and then make sure whether it’s enough to fulfill the owner’s financial goals and obligations or not. You can get this done through independent business appraisers. If the value falls short, you need to find a way to grow and expand your business and boost its valuation.

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Choose your company’s successor-

One of the main things while planning your exit strategy is to decide the successor of your company. The transfer procedure can vary depending on whether a family member is taking over or a partner. An official agreement outlining the sale/transfer with all relevant terms and conditions is necessary while planning the transfer.

No matter who your successor is, you should ensure that the transfer process is seamless and that the amount of money you receive is enough to cover all your financial obligations and goals. Ensure that all the terms and conditions are satisfied before initiating the transfer.

If you don’t have a successor in mind, plan how to sell your business-

If you don’t have a successor in mind, make a proper plan to sell your company. You can sell your business through a broker or your connections. Although your chances of selling your company through a broker are more, note that a significant percentage of money would go to the same upon the successful completion of the sale. A commission paid to the broker would result in a reduced take-home amount, which would have an impact on your goals and obligations.

While planning your exit strategy, make sure all your books of accounts and financial statements are up to date. Buyers would want to know the financial position and performance of the company, so ensure the records are up to date. If they aren’t up to date, work with your accountant to get them up to speed.

Determine how you want to get paid-

Once you manage to sell your business, you can either choose to receive a lump-sum payment or through installments. Different payment modes may have different tax treatments, so ensure that you choose the same wisely. If you have long term goals or obligations that do not require you to fulfill them in one go, then choose to receive the amount in the form of installments. This leaves you with more room for savings and lesser room for unnecessary expenses.

One more thing to take into consideration is tax implications. Transactions such as the sale of tangible and intangible assets are taxed at different rates. Even capital assets and non-capital assets have different tax slabs, so expect a large tax bill after the sale of the company.

Invest your sales proceeds-

Once you manage to sell your business, make sure to invest the proceeds into a diversified portfolio to help the same grow and help you tide through retirement. Ensure that your proceeds are invested in such a way that all your long term goals and obligations are met too.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.