Retiring? Get the most
for your biz at time of sale

By Paul Keller
Guest Columnist

The Internal Revenue Service reports that of the more than 6 million businesses that file tax returns each year, fewer than 11,000 of them are found on Wall Street, as 99.9 percent of American businesses are privately owned.

The Puget Sound is home to thousands of privately owned businesses of all sizes, and most have been quite profitable — growing in conjunction with the Puget Sound region’s population and economy. However, the quest for sole propriety has many eager entrepreneurs and business owners launching companies without considering their exit strategy. This advance planning can make a big difference in the amount of after-tax dollars you pocket after the sale of your business.

All businesses will experience a change of ownership. In some cases, this change will be involuntary — in the form of a bankruptcy or closure. However, in the vast majority of cases, the owner, whether retiring or going on to new ventures, will sell the business and transfer the earning power and goodwill of the business to others. The difference in the cash you keep when selling your business has everything to do with the form of ownership and elective tax status, the nature of the transaction and the tax structuring that you and the buyer agree upon.

Although the annual rate of ownership transition can only be estimated, prior research on the topic — and 23 years of experience in providing representation to those who sell their privately owned businesses — allows me to estimate that between 6 percent and 7 percent of all privately owned businesses change ownership every year.

The majority of these transitions involve the sale and transfer of all prior ownership to new ownership. This means that the average period of ownership is approximately 13 years.

Oftentimes, the owners will have spent years running their businesses on a day-to-day basis, generating both personal income and profits. Yet, surprisingly few business owners have assembled the necessary plans for:

(a) When they elect to sell, or

(b) how to be positioned to maximize their after-tax dollars when it comes time to transition the ownership of their businesses.

It is never too late to become informed about all aspects of how to unlock the hidden value of your business and convert it to cash when the time comes to sell. The process of profitably transitioning business ownership involves a series of steps that include the following:

• Understanding personal objectives and financial needs.
• Realistically determining the present value of your business.
• Understanding what will influence its future value.
• Determining the best market timing to move forward.
• Correctly “packaging” your business.
• Developing strategies to proceed with total confidentiality.
• Knowing how to find the best possible buyers.
• Financially qualifying buyers.
• Entering into completely confidential negotiations.
• Finding a lender for your buyer so you can get cashed out.
• Reaching agreement on the negotiation of details.
• Preparing appropriate legal documents in a time- and cost-effective manner.
• Coordinating prorations and closing needs.
• Realistically assessing post-closing obligations, such as training or transition consulting.
• Closing the transaction.
• Knowing how to best inform employees, customers, vendors and others after the transaction has closed.

In most cases, business owners only go through the sale process once and therefore cannot develop expertise through successive transactions. Whether you started your business with an original exit strategy in mind or are just beginning to develop one, the concepts are not difficult to grasp or implement, and the effort can be very profitable. That is why it is important to engage an expert when planning the successful sale of your business.

Acquisition Services Group specializes in assisting owners of privately owned manufacturing, distribution and service businesses in selling their businesses. For more information, call Paul Keller at 425-450-4800, send e-mail to paul@acquisitioninc.com or go online to www.acquisitioninc.com.

Back to the top/May 2006 Main Menu