If you are planning to retire in the next five years, you need to be planning now. If you are looking for an employee or someone from outside to buy your business, you need to make sure that it is sellable. What does that mean? Can you sell it and get the price out of it that you want and retain enough after taxes to enjoy life?
What determines the amount you get to keep for retirement? Obviously, first is the sales price. If you want a price on the high side, it is most likely that you will need to assist with some or all of the financing of the business. If you don’t want to finance, then you will be on the lower side of the valuation. If you are expecting your buyer to get outside financing for 100% of the purchase price, lenders will only lend on a percentage of the value of the business.
It’s possible to achieve a higher price and only carry a small percentage of the business, but plan now. Get your books in line so that the profit and owner benefit of the business allows the prospective buyer go to a lender and get satisfactory lending.
Secondly, you will have to minimize your exposure to capital gains. Planning ahead can better position you to retain more of your sales price.
Finally, should you be willing to finance all or a portion of the business, you can charge an interest rate that most of the time is higher than what a bank would charge. For most owner carry deals, the rate will vary from 5.5% to 8% depending the overall structure of the deal and the creditworthiness of the buyer.
A good place to start is a valuation on the current state of your business. Decain offers a free valuation, so you have nothing to lose. As always, all of our communications are confidential. Click here to inquire, or fill out our contact form, below.