When you start thinking about selling your business, one of the most important questions you need to ask yourself is whether you could afford to sell it. How much is it worth? How much would you take home after eliminating business debt and paying the taxes and fees associated with the sale?
In many cases, the net cash at the end can be less than half of the base sales price. Could you generate enough income from the proceeds to support your lifestyle? A business valuation and well-crafted financial plan can help you answer these questions.
Most people overestimate the value of their business and how much they will net after the sale. They think they know because they read an article about how much companies are selling for, or they talked to their buddy who recently sold a business.
In reality, every business is unique. Among other qualities, your industry, location, size, tenure, customer base, employees, systems, assets, and profitability all impact the value of your company. A valuation expert who understands your industry can give you a better idea of what it’s really worth.
While this can give you more realistic expectations, keep in mind that a valuation is still just one person’s opinion based on a mix of theoretical, subjective, and objective factors. It can also vary based on the purpose of the valuation.
For example, the calculation differs for estate taxes vs. a potential sale. It also depends on whether you plan to sell internally to a team member or externally to a third party. The terms of the deal often impact the price, too.
Think of it as a home appraisal. It doesn’t mean much until you receive a check from a willing buyer. That’s why it can be smart to test the waters with potential buyers or chat with others in your industry who have recently sold before deciding your next steps.
When it comes to generating income from the proceeds of the sale, most business owners overestimate how much they could earn on other investments to support their lifestyle. We can help you build a robust financial plan to give you a more accurate picture of what your lifestyle might look like after selling your business. That will give you the clarity you need to know when you can afford to sell and the confidence to move forward when the timing is right.
