Position Your Business for a Successful Sale
Taking prudent steps now before you put your business on the market can help you achieve a higher sales price and minimize your tax burden. The result is you walk away with more proceeds from the sale. Good documentation, strong management practices, and a history of generating revenue and cash flow will improve how potential buyers respond to your business.
One simple example is how you report your company’s revenue. It might personally benefit you to minimize your company’s profits on your annual taxes, but this strategy is of no advantage when it comes time to sell your business. Profitability matters, both to potential business owners looking to buy a business as well as the banks that will help them finance the purchase.
Keep Good Financial Records
Make sure you have your business’ financial records for the last three years, and that they are accurate, up to date, and consistent. Keep detailed records of your business expenses.
Keep Your Tax Payments Current
Make sure your sales taxes, FICA, and other tax payments are up to date.
Get Rid of Old Equipment and Inventory
If obsolete equipment and slow-moving inventory is of little value to you or your customers, it’s doubtful the future owner will have much use for it. Clear it out and create room for stock that does move and equipment that actually adds value to your company.
Document Employment Practices
Keep proper records of overtime payment, correctly classify your 1099 independent contractors, and make sure your employees are satisfactorily trained for their jobs.
Create or update an office procedural manual that details your employees’ qualifications, job responsibilities, and training they received while working for you.
Document if you have a management team capable of running the business without your day-to-day involvement, especially if they are willing to stay on under new management. This asset will broaden the appeal of your business to a more diverse pool of potential buyers.
Clean Up Ownership Issues
How you legally incorporate you business affects how much you pay on the profit of its sale. C Corporations generally pay more than a limited liability company (LLC), a Sub Chapter S corporation, or one of the other “pass through” entities. Converting the legal form of your business is a relatively straight forward process, but don’t expect to reap immediate benefits of a lower tax bracket. In some instances, it can take up to ten years.
We will discuss the general advantages and disadvantages of each, and provide you with considerations to take back to your legal and accounting experts. They can help you determine what makes most sense given your unique circumstance.
If you have a partner who no longer plays an active role, take steps to remove them from the business records.