If you run your own business and it has a monetary value to it, there may come a point in time when you want to realise that value by selling your business.
This decision may need to be made sooner than you think and deciding on the best time to sell and the right price can be really difficult and a great cause of stress.
It’s at this point you need to decide what is more important to you, the freedom to do what you love or remain committed to your business baby?
Why you might want to consider selling your business
You may want to be selling your business for a number of reasons:
- You are no longer able to carry out the work.
- You need the money.
- You just don’t enjoy the work anymore.
It’s this third option that I want to focus on.
For most businesses that start out with just one person, you usually start the business because firstly, it’s work you love to do and secondly, you feel you can make a living from it.
Over time businesses that become successful change, your customer base grows, you start to employ staff and there is an increase in your systems and procedures.
Then at some point you might find yourself in a position of no longer being on the frontline doing the work you love but behind the scenes, managing people and the business administration.
At this point you might not be enjoying life as much, it could be getting you down or stressed.
Many business owners will get stuck in this position and continue on the path to unhappiness because they don’t want to give up the business they have worked so hard to build.
- You are likely to value the business far higher than what it’s market rate is because you have an emotional attachment to it.
- You’re scared about what the future holds and what you would do after selling your business.
- You don’t know if you could survive financially and for how long once you’ve sold the business.
Remember, money is only ever a tool, it gives you choices but it’s down to you to live your life to the full doing the things you love as you only get one chance!
The confidence to know selling your business is the right decision
So on the basis that selling your business and going back to doing something you love is what would make you happy, there are a couple of things that will help give you the confidence to proceed with the sale.
- The right price
You may be involved in the type of business that is easy to value based on the sector average. For example it could be 3 times your retainer income.
But if not then you need to set aside your emotional ties to the business and understand what value you need to ensure you have the financial freedom to do whatever you want to do next.
A good financial forecast of the next stage of your life will tell you what figure you need to ensure you can live the life you want.
It may be that you want to take some time out before earning an income again. You might start earning straight away but at a lower rate than you have been used to. Or it could be that you never plan to work again!
By inputting your expected regular spending, one-offs and significant future investment e.g. new house, funds for the kids, a financial forecast will tell you how much money you need.
- Where to invest the money
Once you know the value you are likely to receive from selling your business you need to decide where to put the money.
Leaving it in a bank account may be right for some if it is such a huge amount you’ll never ever get to spend it all, but for most leaving it in a bank account will mean the value reduces over time.
You need to decide whether you would like a regular income from the sale proceeds or are you planning to take money out bit by bit as and when you need it?
This will influence the right type of investment strategy for you.
A good Financial Planner will be able to build you an appropriate mix of investments that take a level of risk that is appropriate for you, and is structured as tax efficiently as possible so you don’t lose your hard earned value to the tax man!
- Protecting the next generation
Usually whilst you retain a trading business, the value will not be subject to Inheritance Tax should you die.
But selling your business will mean the proceeds lose this protection and you may find this money is taxed at 40% on your death, meaning your loved ones could face a significant shortfall.
There are ways you can set up investment strategies and trust funds for your beneficiaries to avoid this problem.
This way your loved ones can inherit the full value of the money at the right time.
If you would like a consultaton at our expense to run through your business options then please contact me. I’d be happy to have a chat and see how we could get you back to doing what you love.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
