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About Coast river business journal. (Astoria, OR) 2006-current | View Entire Issue (April 20, 2022)
COAST RIVER BUSINESS JOURNAL BUSINESS COMMENT APRIL 2022 • 13 Preparing a business for sale or transition By Jessica Newhall Clatsop Community College Small Business Development Center Succession planning and exit planning are important business topics that describe the process of preparing your business for a transition from one owner to the next, either through the transfer to a family member, another individual or a sale to a third party. This is a hot topic right now, as the “silver tsu- nami” eff ect of Baby Boomers hits the small busi- ness community and new potential buyers emerge as the “G reat R esignation ” means many working age individuals are moving away from traditional employment and considering business ownership. If you are a business owner, it is likely that apart from your home, your business is probably one of your largest assets. So, wouldn’t you want to maximize that asset for the greatest future return? Educating yourself on the process of building value in your business and positioning it for future sale is a great place to start. Here are some things to consider: Finding or developing a future buyer: If you are not in a position where you have some- one already identifi ed to take on your business, you will need to develop a prospect for the sale. This can be developing an existing employee, identifying someone within your industry who might be a good buyer, such as a sales representative or employee of another fi rm, or fi nding a new buyer through adver- tising or a business broker. Jessica Newhall Selling a healthy business: Unless it is a strate- gic sale or acquisition of physical assets, it is likely that your business will be harder to sell if it is in a state of declining revenues. So, if you are planning a sale, make sure that you are prepared to put some extra eff ort in and have enough time to right the ship to the point where you can demonstrate enough consecutive quarters of positive performance on the books to give a prospective buyer confi dence that they are buying a viable business. Timing: It is never too early to start planning your exit or succession plan. Unfortunately, many business owners leave this until the very end, when they are burnt out and just ready to move on and are left with no choice other than the dreaded “fi re sale” or to close the doors for good without transi- tioning to a new owner. There isn’t a fi rm rule of thumb on how much time it can take to plan for an exit or transition as it depends on the industry, the individual situation or how healthy the business is at the time of potential transition. Many pro- spective business owners will ask for two or three years of fi nancial statements so you will want to give yourself enough time to strengthen your busi- ness if needed. Same goes if you need to develop a future buyer — don’t wait until your lease is about to expire to begin this process! Business value: What is your business worth? Of course, this depends on several factors ranging from owner’s discretionary income, assets owned by the business and the type of acquisition that will take place. Whatever valuation methodology you use, a business is only worth what someone is willing to pay for it. You can get a professional valuation or work with your Small Business Devel- opment Center advisor to get an idea of what your business’s current value range might be. Financial records: Prospective buyers will likely ask to see records that will validate the price you are asking for your business. To get the maxi- mum value from your business, be prepared to show two to three years of fi nancial statements (profi t and loss and balance sheet) as well as potentially need- ing to provide tax returns and point of sale data. Declaring all income: Hiding cash from Uncle Sam might save you some tax dollars but it could cost you when it comes time to sell your business (not to mention it is illegal ). “Trust me” doesn’t usu- IF YOU ARE A BUSINESS OWNER, IT IS LIKELY THAT APART FROM YOUR HOME, YOUR BUSINESS IS PROBABLY ONE OF YOUR LARGEST ASSETS. SO, WOULDN’T YOU WANT TO MAXIMIZE THAT ASSET FOR THE GREATEST FUTURE RETURN? EDUCATING YOURSELF ON THE PROCESS OF BUILDING VALUE IN YOUR BUSINESS AND POSITIONING IT FOR FUTURE SALE IS A GREAT PLACE TO START. ally go far in business sale transactions and buyers will likely only pay you for the business income you have reported. Consult experts: Business sale transactions can take place without the help of professional advisors, but this is not recommended. You should budget and plan for bringing some experts into your sales pro- cess including your fi nancial advisor (who can tell you what you need to get out of your business for retirement), legal counsel to help you navigate the contract and transfer process, and potentially a busi- ness transition expert depending on the complexity of your transition. These are just a few of the considerations that go into transitioning and selling your business. If you would like more information, the Clatsop Com- munity College Small Business Development Cen- ter will host a free Zoom workshop with business succession expert Arnie Hendricks on succession and exit planning on April 21 (will be available for on-demand viewing after). Visit www.oregonsbdc. org/clatsop for more information. Jessica Newhall is the associate director of the Clatsop Community College Small Business Devel- opment Center. She can be reached at jnewhall@ clatsopcc.edu. APPLIANCE PACKAGE DEALS Over 30 years Mattresses, in Clatsop Furniture and More! County! APPLIANCE AND HOME FURNISHINGS 529 SE MARLIN, WARRENTON 503-861-0929 Hours Open: Mon-Fri 8-6 • Saturday 9-5 • Sunday 10-4 We Service What We Sell
