The Value of Working with Financial Advisors to Sell Your Business

Two businessmen shaking hands

When considering the sale of your business, there is no number more important than your number: the amount you need to net from the sale in order to meet your future goals and objectives.

Finding that number takes quite a bit of analysis. It is not an undertaking to consider lightly, or even determine on your own. In the absence of complete analysis, you are likely to make a decision based upon incomplete information and context. There are no mulligans when selling a business that you’ve worked for years to build – each offer counts.

Would you sell your business without a lawyer hashing out the legal details or an accountant addressing your tax obligations? Of course not. Well, an equally important member of this team is a financial advisor who will help you determine your number.

After all, you should only retire once; we help our clients do it every month. We know what questions to ask and what risks to plan for.

Ask yourself the following questions: Is your goal to stop working entirely after the sale? Do you know how much income you need to live on?

An experienced financial planner can take those answers and, understanding your current fiscal commitments and long-term objectives, work with you to map out the road to financial success.

Consider this example: Two business owners enter into an identical transaction. Seller A is age 66 while Seller B is age 57.

AgeSeller A: 66Seller B: 57
Income $            300,000$              300,000
Business Sale Price $        2,500,000$          2,500,000
Tax Due (45%) $        1,125,000$          1,125,000
Net Proceeds $        1,375,000$          1,375,000

They both net the same amount from the sale; however, due to their age differences they will have different considerations, which may require the Seller B to require a higher price. Consider:

  • Seller A is eligible to collect his full social security benefit. Seller B has to wait 9 more years.
  • Seller A has had 9 more years to save for retirement.
  • Seller B may have college tuitions, weddings, mortgage expenses that Seller A may not have.

With an average life expectancy of 79 years for a U.S. male and more than half estimated to live beyond 79 years, the $1.375 million net proceeds from the sale earning 5% annually over 22 years will equate to only $95K per year. For Seller A, this payment would be $137K per year. Seller B may need to find additional sources of income to meet his continued financial obligations and fund his retirement ambitions.

While it is true that your business is truly only worth what someone else is willing to pay for it, you have to approach the sale with some data in hand. How much is your business worth to you? How much must you net from the sale in order to accomplish your long-term objective? In other words, what is your number?

Think of it as a financial planning decision as well as a business valuation issue. More than a transaction, this is a lifetime preparedness exercise. And you may have to make some hard decisions: You may be able to sell the business, but should you? Are the economic conditions in your industry right for selling your business? Are you willing to walk away if your number is not met?

In the end, knowing your number means taking a step back and looking at the entire picture. It is easy to get excited by lots of zeroes, but remember: you have to consider taxes, your age (57 versus 66), your health, and the years of income you are giving up, all of which can send those zeroes dwindling quickly.

It is very tempting to gloss over these details. But knowing your number – and choosing to work with a trusted advisor – brings immeasurable value to the sale process. With your number in hand, you will be able to plan for today, the day after you sell your business, and next 25 years of your life.

Remember – you only retire once, we do it every month.