Recent statistics show almost 40% of small business owners feel they don’t have the financial confidence to retire before they’re 65. What’s more, a recent study suggests a full 72% don’t even have an exit strategy.
Small Business Trends spoke with Jessica Fialkovich, co-owner and president of Transworld Business Advisors – Rocky Mountain, to get some expert tips on selling your small business for retirement.
Selling Your Business for Retirement
Fialkovich began by cautioning against the all-your-eggs-in-one-basket mentality when it comes to selling your business ahead of retirement.
Diversify Your Money
“One of the biggest things that I see small business owners do is hinge their entire retirement on the sale of their business,” she says. “Even before the sale, it’s really important that people take money out of the business from a personal standpoint and invest it.”
That’s good incentive to look at this list of the best mutual funds for 2018.
Clean Your Books and Records Up
Your financial statements are a big draw when you’re selling any business. Updating the core documents like profit and loss statements can make a big difference to anyone kicking the tires on your enterprise.
Fialkovich suggests updated balance sheets and tax returns for at least the last three fiscal years.
“That’s what buyers will ask for when they’re performing due diligence to verify any claims the owners have made,” she says. “Sometimes they’ll even tie those all the way back to bank statements.”
The idea it to make sure everything ties together, makes sense and is easy to understand.
Remove Yourself from The Business
This is especially true for customer facing businesses like retail and small restaurants. Easing the transition here means hiring employees that will stay as the face of your business when the ownership changes.
By fading into the background as the business owner and allowing these people to take over your duties, small business owners will actually be increasing the value of their business and the likelihood it will sell.
Document Your Processes and Systems
This is important for every business but critical for some verticals like manufacturing, distribution and sales. Like some of the other tips here, this step is designed to ease the change over from one owner to the other.
“After you sell the business, you go through this transition period where you teach a new owner how to run the company,” Fialkovich says, “and if that’s written down and documented, it’s easier for the new buyer to pick up where the old owner left off.”
It’s much easier than a transition where the new buyer is left to try and verbally pull all the tricks of the business out of the old buyer’s head. That usually makes for a stressful environment.
Here’s a list of 10 of the top software programs that can help you accomplish this goal.
Get Rid of Legal Barriers
The idea here is to increase the value of your business while eliminating the deal killers. For example, Fialkovich also suggests removing any of the legal pilons that can make the road to a sale difficult.
“One that we keep coming up against is the transfer of the lease.”
She goes on to say that because the market is so hot right now, landlords are using the sale of the business as an opportunity to renegotiate leases and up the rent.
Having a conversation with a landlord and asking about the process of transferring a lease before you decide to sell prevents any complications and keeps things up front.