You start your business with dreams of building your fortune. When it comes time to sell, you will want to keep as many of those dollars as you can in exchange for your blood, sweat and tears. Advance planning can make a big difference in the amount you pocket after the sale. In most cases, owners spend years running their businesses on a day-to-day basis to generate both personal income and profits. Yet surprisingly, few business owners assemble the necessary plans for when they elect to sell, or know how to be positioned to maximize their after tax dollars when it comes time to transition the ownership of their businesses.
Early Business Decisions Have Lasting Impacts
When you first start a business, many of the decisions you make have the possibility of effecting your sales price and/or after-tax value of your company. Often in these early stages it is hard to tell what the lasting ramifications might be from the choices that you are making, especially if this is your first go round.
Company Structure
Did you know that the way your company is structured ("C" Corporation, "S" Corporation, LLC, or sole proprietorship) makes a tremendous difference in how much after-tax cash will find its way into your pocket after a sale?
For more information on the importance of corporate structure, consider reading, Your Business and Its Old Year's Resolutions.
Business Model
Your business model also plays a big role in the future value of your business. Are you the type that has to do everything yourself? Is "delegation" not a word in your vocabulary? While it is impressive what you are able to do with your business, that one-man-band approach can terrify potential buyers. Will they be able to fill your larger-than-life shoes from the get-go? Having solid employees in place that can run the business in your absence (What new owner wants to dream of a future without a vacation?) reduces the risk in a potential buyer's mind of what losing you will do to the business.
Customer and Vendor Concentration
Did you know that having one special client who accounts for more than 10% of your annual revenues reduces the value of your company in the minds of potential buyers? Do you buy all your goods from one supplier? This makes would-be acquirers nervous since they would be reliant on someone who might go out of business or substantially increase their rates.
Though an exit strategy should ideally be part of an original business plan, it is never too late to become informed about all aspects of unlocking the hidden value of your business and converting it to cash when the time comes to sell. Knowledge is power, which, if combined with proper actions, might mean more money in your pocket down the road.
