Not every business owner wants to sell, but they may feel as though they have to sell. Life changes, such as a health problem, can trigger the sale of a business. Declining business revenue and partnership problems can cause business owners to sell. Yet, selling isn’t always an option, especially for small businesses. Let’s take a look at such a situation.
The business is a successful distribution business, a classic example of a value-enhanced business. There are two owners who each draw several hundred thousand from the business each year. They also have a range of other benefits. Let’s say the business was to sell for $2 million dollars. Each of the owners would receive approximately $1 million dollars. This sounds like a sizeable about, so what’s the problem?
The $1 million dollars shrinks considerably when you factor in such variables as taxes, closing expenses and debt. This leaves the owners with much less money, maybe as little as two years of income. In this situation, selling isn’t a good idea. Many small business owners want to “cash in” and retire only to realize that their business isn’t worth enough to do so.
Business owners who can’t afford to retire are in a difficult position. They may have lost their focus, resulting in a failure to invest financially and creatively in the business. This decreases the value of the business. Competitors most likely will move in to fill the void.
What does this mean for business owners? Business owners don’t want to get stuck in the situation discussed above. Business owners want to sell when a business is at its high point, not when they feel as though they have to sell.
One of the smartest decisions that a business owner ever makes is determining the best time to sell. Working with an experienced business broker is a fast and simple way to determine if the time is right to sell your business. Click here to view EBIT Associates services related to Strategic Advisory.