Can You Afford to Sell Your Business?

Thinking about the sale of your business can be both exciting and nerve-wracking. Are you going to get good value for your business, and what does that value look like? Will your years of hard work finally pay off?

If you have your advisory team in place to help you early on throughout the selling process, you shouldn’t worry about getting good value. What you need to know, is if that value is enough for your lifestyle.

Is Your Net Cash Flow Sufficient?

As a successful business owner, you’re often used to a steady stream of cash flowing into your accounts. However, when you sell your business, you’re left with one big lump sum of money. Sounds great in theory, but that’s not an ideal situation to be in moving forward, unless you plan on swimming in a bathtub full of fifty-dollar bills.

Even though that may sound fun, that strategy won’t keep you happy for the next 20, 30 or even 40 years.

What you need to do is engage your wealth advisor to find the right solutions for you. It’s not efficient to just draw from that big lump sum of money moving forward. You need to figure out how that cash will flow to you on a predictable and regular basis.

The key word in all of this is “net.” If you sell your small business for $2 million but it all comes to you as earned income, your net income might be something like $1.2 million. If that was the case, that’s incredibly disappointing and a waste of your hard-earned work.

A situation like that can catch a lot of business owners by surprise. You’re making plans off the $2 million before, all the sudden, almost half of it is gone. You need to figure out how you will be taxed on it. What’s the best way to limit what you’re paying in taxes?

Consult your tax professional well ahead of time to make sure your company is optimally structured to flow sale proceeds to you in the most tax efficient manner. This can take time to implement, so make sure you get started early.

What if the Numbers Don’t Work

Don’t blame the messenger!

Even if the numbers don’t work for your life goals initially, figuring this out early can be a good thing.  Imagine if you hadn’t done the pre-work, sold and THEN discovered you were burning through your money earlier than you anticipated. It might sound like a one-off, doomsday scenario, but it happens all the time.

In reality, you should be working on this type of planning early on so that you can continually monitor and measure where you are at.

The other good news is now you know what you have to do. The numbers don’t lie. You either have to lower your life goals and income needs or put a plan in place to increase the value of your company to the level you require.

If you are not throwing in the towel and accepting what you are given, then start by putting the right advisory team around you.

Discovering Your Cash Vehicle in Retirement

It’s vital to understand what you need (or want) in your pocket every year to live the lifestyle of your choice. Often, it’s hard for business owners to make the mental leap from having their business that they can see, touch, command and influence to “investments,” which they often don’t understand or aren’t comfortable with because they can’t see, touch and control them.

This is why a natural default for retirees is to buy more real estate. This can be part of the solution, but at this stage in life you really need to consider a diversified offering and always with the focus of tax efficiency. Again, no use creating interest income taxed at top marginal tax rate when there are plenty of creative tax efficient options available.

Remember: Its not what you make, its what you keep… and then are able to give back in some way. Perhaps donating to a charitable cause is an avenue you can explore to improve your tax efficiency. A good wealth advisor who will help you structure a tax efficient income stream, invested appropriately for your circumstance.

The bottom line is to surround yourself with great advisors who can help you reach your end goal. A tax accountant, wealth manager, lawyer, and someone with a speciality in exit planning is key. The investment of working with these advisors is one of the best choices you will ever make.

If you’re thinking of selling, why not start now? Chances are you will then exceed even your best expectations.