Business owners, I’m talking to you.
Whether you love your business or not, you may not plan on working in it forever. Be it you want to keep working for a long time, you are coming up to retirement age soon, or you simply want to have a plan to be out within a certain time frame, some planning is a good idea.
Whether the plan is to sell, float or pass the business onto the next generation, the amount you get for it may ultimately determine what sort of retirement you’ll have.
Some things to take into account:
Make profit a priority
A first step to preparing for retirement is to work out how much you might need to sustain your planned lifestyle. The next step is working out what the business is worth.
If the business is not worth what you need to fund your preferred lifestyle in retirement, then you may need to go back and better prepare the company.
Understanding the value of a business is often regarded as one of the biggest challenges facing business owners. While a business may have been someone’s passion for decades, at the end of the day a buyer will only pay what the business is worth to them.
Maximise the business value
High on the list of factors impacting the value of a business are the certainty of future cash flow and profits and some of the risks to achieving them. It is definitely better to have a business with a regular and dependable positive cash flow than one that is patchy or unable to predict.
Since the profitability of a business is normally determined through its financial records these should be accurate, current and reliable.
Messy or out of date records could put an unwanted cloud over the value of the business. Business owners can expect to enhance the value of their business if they have documented agreements with their employees, suppliers, customers and anyone else who contributes to the profitability of their business.
A buyer will want to know that key drivers of the business such as valued employees and customers are going to be there when they take over a company.
Business structure important
Nobody likes paying more tax than they have to which is why it is important to ensure you have the right business structure.
There are four small business capital gains tax concessions available when qualifying businesses are sold. Applied the right way they may reduce the tax payable on a profit from selling a business, but there are many traps.
One such trap is agreeing to sell the business instead of negotiating to sell the shares in the company which automatically means losing the benefit of the 50 per cent capital gains tax discount.
Not sure what structure your business is, or why it matters? Read over here.
Plan, plan and plan
The more planning that can go into a sale the better the outcome should be. This may start with understanding early what it is about the business that is going to create the most value; whether it is the location, intellectual property or experience of the employees and the organisation.
Building on these attributes will help enhance the value of the business.
Unsolicited approaches for businesses are not uncommon, often from competitors. If that happens, you need to be ready; otherwise you can’t take the steps to enhance what you could get for your business and ultimately, that well-earned retirement.
Reach out to us by filling in your details here to discuss how to get your business ready for sale.
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This article was written by a third party.