Friday, August 23, 2019

What’s Next?

Ask the CFP

“Possibilities don’t add up, they multiply.”

~ Paul M. Romer, American Economist

Question: I’m in my early sixties and considering retirement. During the 2008 recession I started a small business I hope to sell in the next few years. What suggestions do you have that may help me prepare for the sale?

Answer: The 2018 Market Pulse Survey produced in part by the International Business Brokers Association found that if you know your timeframe, who is the market of potential buyers, and the optimal price you’d like to receive you’re ahead of 67% of most small business sellers. They found that the majority of business owners in your position haven’t done any planning before putting their business on the market. A quarter of those who did any planning spent less than twelve months doing so before listing their businesses for sale.

Contacting a trusted commercial real estate firm who is familiar with businesses similar to yours is always a good place to start. There’s also a company called BizBuySell that began in 1996 which is the internet’s largest and most heavily trafficked site for business sale listings. According to BizBuySell it’s a sellers’ market with small business sales hitting a record 9,919 sales 2017 compared to 7,842 in 2016. During the first-half of 2018 they reported 5,383 sales, indicating that the numbers for the full-year would likely beat 2017. Asking prices were up 11% and final sales prices rose 14% in 2017 from the previous year. If these trends continue, it’s a good time to be a seller. 

Many small businesses were started in 2008 as displaced employees struck out on their own during the downturn. As retirement and encore careers beckon many Boomers, the sale of these businesses is increasing. Another factor that may be contributing to the uptick in sales is The Tax Cuts and Job Act of 2017 that created a 20% deduction for qualified business income for small business owners. General guidelines state that single owners with a taxable income of less than $157,500, and married owners with taxable income of less than $315,000 qualify for this attractive 20% deduction.

Additional data from BizBuySell shows that nearly 60% of business owners surveyed plan to sell their business within the next two years. It will help to know the approximate value of the business and your future financial needs. Going through this process with your CFP® practitioner and team of trusted advisors may help put a sharp pencil to imprecise estimates to get you started with your planning. After expenses and taxes from the sale are realized will there be gaps between your income (including social security if appropriate) and your future living expenses. This is one time you won’t want any surprises.  

It wasn’t indicated in your question, but if you’re planning on making the sale or transfer to a family member, this type of transition likely takes more, not less, preparation than selling to an outside third-party. Another option is to sell to your employees if they’re interested using an employee stock option plan. These are more complex possibilities and if you’d like information on them we’re happy to help.

A large portion of business valuations are tied to cash flow reporting. Depending on your industry, some potential buyers may be concerned with the possibility of tariffs. If you have the cash available to lock in prices for materials if appropriate, this may be a strategy to reduce trade uncertainty and perhaps create additional value. Preserving favorable contracts and strong ties with customers and vendors is another component of business valuation. Also, the ability to exchange fixed for variable costs keeps a business nimble. Outsourcing is one way to do this and it may reduce costs and increase flexibility too. These are all things potential buyers may focus on when making their offers. By putting yourself in the buyers’ shoes, it may be easier to properly value and market your business for sale. 

Evaluating and determining your future financial needs and desires ahead of time, while you’re not under any pressure may help you navigate your way to whatever is next. A vision of the next phase in your life may help in determining how to optimize the sale of your business and the next chapter of life. Engaging the right team of professionals to help you navigate the process while you’re making your plans may be beneficial. In many situations the secret to success, besides writing handwritten thank you notes, is to prepare and plan. This may be the key to unlock doors for your future. Stay focused and plan accordingly.

The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Always consult with financial, legal, estate and tax planning professionals before taking any action regarding this planning. This information is general l in nature and is not a recommendation of any particular strategy. Raymond James is not affiliated with and does not endorse BizBuySell.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”

This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239-389-1041, email Website:

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