For business owners especially, a new year brings a wave of introspection, ambition and action. Strategic planning, SMART goals, hopes and dreams are all in front of us in 2019. Amid the excitement, you might also find yourself wondering if it’s time to start a new chapter in your life—aka exit your business. How much longer are you going to do this? Is it time to get out while you’re ahead? What’s going to happen to the market? How much money can I get for the company? If these questions strike a chord, consider the following practices:
Business as Usual
First things first: It’s time to close the books on 2018. Even if you have a phenomenal controller, financial reporting and tax preparation take a ton of time. We all go through it every year and there’s nothing we can do to change it. Take care of business and dedicate the time needed to ensure your financials are well-organized. The number one problem when selling a business is that the financials are unreliable. Spend the time and support your accounting department to make sure what you are reporting is correct and accurate. Good financial reporting will go a long way when it comes to selling your business.
But While You’re at It…
Naturally, you’re setting goals for the year ahead. Maybe you want to hire additional staff. Perhaps you’re looking to bring your product online, add a new service or expand the existing client base. Everyone does better with specific goals attached to those objectives so you can track your results. All potential buyers would love to see a well thought out, measured and executed business plan for 2019.
Wait, though…what about you? What do you want? You’re hardwired to set goals for your business, but as the owner, your personal goals also affect how you move your company forward. Do you want to travel more? Live healthier? Spend time with family? These types of revelations might lead you to consider what else you could be doing with your career. January is peak gym membership time; in the same vein, it’s also a peak time for business owner reflection. Set personal goals so when you exit you have a life outside the business. Volunteer, coach, teach, or pick up a new hobby – anything that charges your batteries other than work.
Tax Mitigation vs. Selling Your Business
In order to make a sale, the owner, the business and the market have to be ready. This time of year it’s all about getting your 2018 books ready for outside review. We already mentioned that we need clean, accurate and profitable financials. The struggle owners often have is showing profit and paying taxes. The thought of decreasing your income tax ends the moment you want to consider selling your business. It’s imperative that you show as much profit as you can because that’s what buyers want to buy. Unfortunately, that means you will have to pay more income tax.
Let’s pretend you’re moving $500k of your 2018 income to 2019. Maybe you save $200k in taxes this April. That’s fantastic, but when we think about selling your business, we want to show that $500k income in the right year. It might pain you to pay the extra $200k in taxes, but if we can get, say, a 4x multiple on that $500k of income in the sale price, it’s now worth $2 million. Paying $200k in taxes can get you $2 million more in sale price. You win.
Ready, Set, Go!
At this point, if you’re thinking, “I’m ready. 2019 is the year I sell my business. I showed all my profit, I paid my taxes, I have clean 2018 financials and my 2019 goals are strategic and measurable. Let’s get started!”
Good news – you’ve already begun. In the five minutes it took to read this article, you have gained the foresight that many owners lack when it comes to planning their exit. If you’re ready to take selling your business seriously, we’re here to assist you with charting the path ahead. Contact us to get started with an exit assessment.