Are you prepared?
Owners of closely held businesses face significant and often unforeseen costs when they sell a business. If it could appear in a business ledger, “lack of preparation to sell” might be the single greatest cost. You can increase or decrease the value of your business by 10% to 30% or even more, depending on how you prepare today. This is especially true regarding your future tax bite.
If you don’t know your future tax payment and don’t have a strategy that keeps total taxes owed far below 25%, you aren’t ready to sell for the highest net gain. The vast majority of owners do not accurately anticipate what their tax payment will be and how best to control it with the appropriate corporate structure. The choice between a C or S Corp, for example, needs to be made at least five years in advance of any sale. Without tax planning, the income and capital gains taxes can also significantly reduce the post-sale amount by as much as 40-50%!
In addition to tax considerations, the following factors that will discount your sell price:
o The business is too dependent on the CEO/owner
o The management team is not fully developed
o There is a high level of customer concentration
o Key business systems are not documented and hard to scale
o Business co-owners are not in agreement
o Insurance doesn’t cover unaddressed product liability
o Seller’s team of CPAs, bankers, lawyers, marketers, wealth managers, etc. not coordinated.
o Absence of golden handcuffs for key employees (employees and customers often leave during/after sales)
If any of the above factors are present a buyer might well negotiate a lower price. Going from a 6 times EBITDA to 5 times represents a cost of $2,000,000 when selling a business with $20,000,000 in revenues and $2MM in EBITDA.
Even if you don’t plan to sell for five years, a wise executive will do two things NOW:
1) Consult a qualified Exit Planning Strategist to learn what preliminary improvements should be in place and by when. The education you gain will make you glad you didn’t wait.
2) Request an overhead and tax credit review capable of increasing your current cash flow and future sell price by as much as 10%.
If you would like a no-cost assessment of the strategies that could increase your market value and sell price 10% or more call DCI (www.dci.kirkprojects.com) at (888) 395-0809 or email us at firstname.lastname@example.org.