“Small business owners pour years of blood, sweat and tears into building their entrepreneurial livelihood, first to provide for their lives and their families during the working years, and then later to transition as a retirement asset through sale or other succession planning.”
As Southcoast Today reports in the recent article, “Retiring after you sell your business? It may not be as simple as you think,” many business owners don’t have a sense of what their business is worth.
The simple answer is that it’s worth what someone else is willing to pay for it.
However, there are many factors that need to be considered when valuing a business. They include the age of the business, revenue, income, stability of revenue and income, growth rate, industry, management, systems and procedures, key employees, employee turnover, the economy and more.
There are also multiple methods used to value it, such as Book Value, Comparative Business Sales, Multiple of Discretionary Earnings, Discounted Cash Flow and Asset Valuation.
In many instances, the business is the single biggest asset owned by the owner. It may represent the majority of his or her net worth. If so, the owner should consider how he or she will monetize the value of the business, when it comes time to retire. They also need to protect the business against risks that could close it.
If the business is the owner’s biggest asset, how is she going to be able to retire comfortably?
There should be a succession plan in place to clarify whether the business is to be sold to an outside third party, to company employees or to the owner’s children. The owner will also have to possess enough other non-business assets, if it’s to be left to his or her children.
In a family business, there could be one child who worked in the business, while the other children didn’t. How will this be handled in estate planning?
The small business is usually where the business owner spends most of her time, focus, and energy. However, it is only a part of her life and financial picture. In the end, the business has a major impact on the personal financial planning of the owner and her family. This includes time spent with family, estate planning, retirement planning, investment management, succession planning, exit planning, charitable giving, health and fitness goals and spiritual goals.
Talk with an experienced estate planning attorney today.
Reference: Southcoast Today (March 2, 2018) “Retiring after you sell your business? It may not be as simple as you think”