However committed they are to their businesses, there comes a time when every entrepreneur needs to step down and let someone else take over. Business sales can provide the freedom and money for a carefree retirement, but only if you sell at the right time. The following tips will help you decide when to sell a business:
The first step is to figure out whether you can live off the profits of your sale. If your business is valuable enough to set you up for life, sell as soon as possible. If you don’t, market volatility or bad luck could later cause your business to decline in value, depriving you of the chance to retire in luxury.
Start by determining how much money you’ll need per year to maintain your lifestyle. This isn’t the same as the amount of money you currently spend. As a business owner, you must pay to entertain clients and host corporate events. Once you subtract these costs, your lifestyle will be significantly cheaper.
The next step is to figure out how much money you can make by selling your company. Start by calculating your company’s value, and then subtract the taxes you’ll have to pay to sell the company, fees you’ll have to pay to a corporate sales broker, and all other costs of selling. The remaining number will be the rough amount of money you will make from the sale.
Finally, multiply your net earnings by 0.04. This will give you a rough estimate of the interest you can make each year. If selling your company will net you $20 million, for example, you can expect to earn $800,000 a year from the proceeds. If you will spend less than $800,000 a year, now is the time to sell.
Even if you won’t earn enough money from selling your company alone to maintain your lifestyle, selling may still be a wise choice if you think you can make up the difference through other sources of income. As a successful business owner, you’ll be in high-demand for part-time consulting jobs and lucrative public speaking gigs. You may also scale back your lifestyle and/or sell other assets to make ends meet. Whether you choose to do this or continue trying to grow your company should depend on the following factors:
- Volatility- However well-managed and efficient your company may be, there’s always a chance that it could fail due to changes in the market, especially if you work in a volatile industry. The longer you own a business, the more likely that a bad year will wipe out your wealth.
- Legacy- You may be tempted to stay at your company as long as possible to make sure that it survives, but if you’re confident in the management and have a well-groomed successor, you can leave without guilt.
- Fatigue- However excited you may have been about your business when you started it, after decades of management, you have every right to feel tired of it. Holding on to a business may keep you from traveling the world, going back to school, or relaxing at a beach resort. If another interest is more enriching, there’s nothing wrong with pursuing it.
Sunbelt Business Brokers is committed to maximizing sales prices and minimizing costs for business owners who are ready to let go. Whatever your company’s size or specialty, Sunbelt will get you the price you deserve.