In my first post, I identified the best time to sell your business. The first question I posed was whether or not you can afford to sell. In this post I want to go more in depth into the factors that determine what you can afford. Budgeting and forecasting is complicated and it’s impossible get an accurate picture without knowing everything that needs to be considered.
There are four components to consider when assessing whether or not you can afford to sell. First, you need to know how much your business is worth. Then identify what you will need to meet your financial obligations. You will need to know which fees and taxes you will incur upon the sale of your business. With these three values you can determine how much you will need to sell your business for in order to be able to afford the sale.
The first step is to find out how much your business is worth. This step is likely the most difficult to do on your own. There are a lot of factors that go into correctly valuing a business, it’s best to reach out to an experienced business broker to help get the most accurate valuation. In my article Positioning your business: price, I identified some factors that influence price, like the way that different types of buyers can affect the price of a business. This is one thing to keep in mind when valuing your business, but nearly all buyers are looking for a sound investment. The value of your business is also affected by intangibles like growth opportunities in the market or your business’s reputation in the community.
Once you have established the value of your business, assess how much you need to meet your financial obligations and to live comfortably. To do this will require an annual budget of personal expenses. The more exhaustive your budget, the more clear you picture will be. You will also need to calculate your net worth and income flows from outside of the company. Remember that when you calculate your net worth, you must separate your personal assets from your company’s assets. With your budget and net worth, you can calculate the amount that you need to make from the sale of your business in order to meet your annual budget.
The next step is often forgotten when assessing if you can afford to sell. It’s imperative to understand the fees and taxes that will take away from your profits after the sale of your business. Taxes alone can frequently range from 30% to 50% of your takeaway. This can make all the difference when considering your net. I can work with you to help you understand what fees you will incur during the sale of your business and your accountant can assist with understanding tax implications.
With all of these factors accounted for, you can assess what price you need to sell your property at in order to meet your financial needs from the sale. You can also take steps to maximize the value of your business and to minimize taxes with a tax planning strategy in order to increase your net. With careful assessment and understanding the fees and costs associated with selling your business, you can feel confident that you can afford to sell your business.