COVID-19 / Recession – A couple years ago now (2020 & 2021), the global pandemic created a lot of extra stress for many business owners, even if their business(s) did perform well. And as we start off 2024, it’s all over the news about a looming recession. Honestly, many business owners have had enough of “putting out these fires.” With all the difficulties that COVID-19 and its variants have brought us, now we might have to deal with another recession. On top of tight supply chain and staffing shortages that many businesses are struggling with, it is understandable that you would not want to manage these sorts of things any longer. If you feel this pain and wish it would end sooner rather than later, you should start preparing your business for a transition.
You’ve had enough – You simply do not want to keep doing your job any longer. You would rather stay home or be anywhere else but at work.
Beat the Baby Boom – As we all know, the Baby Boomer generation is starting to retire. The entrepreneurs in that generation will need to find new owners for their businesses. And when the majority of them bring their businesses to market, that will provide Buyers with numerous options for their capital. This means that your business will have to compete with all the other businesses on the market and we will shift from a Seller’s market to a Buyer’s market. When this happens, your business might not be worth what it once was. As this process is already underway, it might be best to get ahead of that curve and discuss what options are available to you today.
You are a Baby Boomer – If you are in that generation and have built and grown your business over the past 20 to 40 years, there’s a good chance that you are ready to start enjoying some activities outside of work (otherwise known as life). If so, now is the time to start preparing your business for a successful transition.
You are Approaching or have Surpassed 70-years of Age – If so, it is likely time to prepare your business for a transition.
You Still Have Your Get Up and Go – If you still have your health, maybe it’s time to consider retiring now while you can still enjoy your time with family and friends, doing the things that make you happy and start crossing off some of the things on your bucket list.
Sales are Growing – If your sales, and hopefully profits, have been increasing fairly steadily the past few years (3 to 5+) and the growth is looking sustainable (e.g. there are (renewed) long term contracts in place), this could be the best time for a transition. Any worthwhile investment expert “worth their salt” will tell you that the best time to sell anything is when it’s worth the most.
Sales have Stagnated – Are you finding that you no longer have the drive that you once did, to pursue new business opportunities, to manage your staff, or to do other tasks that it takes to run / grow your business? If this is the case, now might be the optimal time to consider a transition.
You are Prepared – You have met with a Business Broker a while back and implemented their recommendations and now it is time to reap the rewards of all that hard work. No need to wait any longer, contact them today.
Management is in Place – Many prospective Buyers look for businesses that have existing, experienced management in place. This gives them a level of comfort where they can count on the current managers to help them “learn the ropes” during the transition period, and they can work on the business versus working in it.
Your Industry is Consolidating – Many industries are in various stages of consolidation. Strategic Buyers including private equity groups, family trusts and/or local business owners could be looking to acquire your company to compliment and grow their current operations.
Buyers are Waiting for You – Buyers often express interest in purchasing profitable, well branded companies that have established a good reputation within their community and industry. The past couple of years especially, we have seen an increase in qualified Buyers looking to purchase such companies. If you contact your local Business Broker, there’s a good chance that they know of someone that is wanting to purchase a business in your industry.
You’ve Already had Offers – Many business owners have spoken with one or more interested parties offering to purchase their business over the years. While some of these offers are insincere, others are legitimate. Having a Business Broker on your side will quickly separate those who are prepared to make a serious offer from the “tire kickers.”
No More Capital – Your business has lots of potential, but you do not have access to the required capital (including energy, time, and/or money) to take it to the next level. Or, you do not want to risk part of your retirement plan by reinvesting in the business.
Lack of Technology or New Skills – Most industries are changing because of technological advancements. If you do not want or are unable to invest in this, consider expediting a transfer of ownership to a Buyer who sees the existing value in your business and brings the desire and ability to make the technological updates happen. This will ensure your legacy so that your staff, customers, and suppliers will be looked after.
New Interest or Opportunity is Calling – There are serial entrepreneurs out there, who like to build and grow businesses to a certain point and then they start to lose interest as the challenge isn’t there any longer. If you have you found your interest in your business waning, perhaps it is time to sell, so that you can focus on your next goal.
Your Theoretical Succession Plan is in Place – Many entrepreneurs hope that one of their children, another family member or perhaps an employee will take over their company. Do they really want the responsibility? Can they afford it? Have you discussed this with them recently? It is time to solidify this potential plan as more often than not, subsequent generations do not want to assume the family business and many employees lack the financial ability, desire to purchase / run a company. A neutral, 3rd party can help to determine if your Succession Plan is still in Place.
Your Theoretical Succession Plan is Not in Place – One of the things that the pandemic may have accomplished is scarring your children, staff, or prospective successor. After they have witnessed what you have had to do, to help the business survive, they no longer want to own their own business. And now you need to find someone else to takeover your company.
You Know What It’s Worth – Having a Business Broker complete a Most Probable Selling Price (MPSP) analysis for your business(es) will provide a reasonable estimate of your businesses’ current market value. Take this information to your Accountant, Tax Attorney, and/or Wealth Planner to solidify your retirement strategy. Then it’s time to put that plan in motion.
You Could Get More – If your Business is growing (see #4 above), then there’s a chance that you could receive a premium for your business if an earn-out is agreed to. If your business generates more than the minimum agreed to income during the Vendor financing period following a sale, you could receive a percentage of those excess earnings, in addition to a regular, minimum payment. This way your business still successfully transitions to new ownership, and you are compensated for the hard work that you’ve put into setting up the company for its future success.
Reducing Your Retirement Risk – By preparing to sell your business now, you have greater certainty in planning for your retirement. As selling a business takes time, sometimes a couple of years, and postponing the sale of your business increases the risk that your retirement plan could fall short of your goal. After working towards your retirement goals for so long, why take that gamble?
Interest Rates – The Bank of Canada has set the Prime lending rate at 7.2% (at the time this article was published). After being so low for an unprecedented amount of time, the Prime rate has now returned to somewhat “normal” levels. This rise in the Interest Rate has caused Buyers to be more cautious in their acquisitions’. The best way to compensate for the rising rates is to set up a Vendor Take Back note where you would hold a portion or all of the financing for the sale of your business, which could allow you to defer or reduce the taxes owed on the proceeds of the sale and could enable you to be paid more for your business over time, while letting you retire.
Lifetime Capital Gains Exemption – This tax advantage was recently increased to $1,016,836 in 2024. If you qualify, shareholders may not have to pay taxes on this amount of the purchase price, upon the sale of your business. Please consult a tax specialist for more information. One important thing to consider here is the future taxation of business sales. Now that the pandemic is over, there will likely be changes made to the tax codes, to start paying back the resulting deficit. There is a good chance that taxes associated with the sale of businesses, real estate, etc. will be different in future years. It is my opinion that, at some point, the government will not reduce the amount of taxes that will be required, rather they will be increased. So if you would prefer to have more of the proceeds from the sale your business in your bank account vs. the government’s coffers, it might be worth your while to consider selling sooner rather than later.
Leave on Your Terms – Unfortunately, life’s misfortunes will happen to all of us, when we least expect it. Properly planning and preparing your business for a sale is highly recommended before one or more of the 4-D’s (Death, Divorce, Disability and/or Dissolution) affect you and/or your business partner(s). Be proactive to protect your interests and those of your loved ones!
Buy or Sell a Business in California
