4 Suggestions for Selling Your Business Before Retirement

May 22, 2011

By Anthony Benedict

Selling Your BusinessIf you own a business, there is a good chance that a great deal of your net worth is tied up in your business. This might be fine while you are younger, but it can become problematic when you start to think about your retirement. It is difficult to predict the future value of your business, and how much of that value you will be able to use personally, when you finally decide to stop working. Thankfully, if you are wise about your decision making process, you can reduce many of these risks. Here are four things you can think about with regard to selling your business.

1. Consider All the Available Options

First of all, you will need to decide whether to sell the business all at once or in a series of chunks. While selling off bits and pieces of a business gives you more liquidity, it can also be a difficult move to pull off, because most people would rather buy the entire business at once.

Another option is to take out a loan against your business and invest it in a tax-deferred account. This is a good idea if your business produces a steady income, but it can be risky if it is in a more volatile market.

2. Plan Ahead

Many financial experts recommend contacting a professional about a year before you plan to sell the business. This helps you plan not only how the sale will work, but how to properly invest the funds received from the sale. This will help you determine how much of the funds should stay liquid, and where to invest the rest of it.

Business brokers or investment bankers can help you determine the value of your business. In the majority of cases, you will be able to get the best deal from a strategic buyer like a company that hopes to expand into new areas of the market. You can also sell to financial buyers who will tend to base their price more on the existing cash flow than the potential of the business.

Regardless of who you are selling to, financial experts argue that you should stress the inherent value of the business, and the potential that it has for growth in the future.

3. Setting Up the Deal

There are many different ways that you can be paid for your business. It is important to reach an agreement on how rapidly you will be paid, how often, and of course, how much. Be sure to involve a tax adviser in the decision making process as some methods are better than others with regard to taxation.

If you want to keep the business in the family, the ideal method is to use a trust. Alternatively, an earn-out is when you are paid periodically for the purchase. In many cases an earn-out allows you to sell the company for a larger price. On the downside, if the company does poorly this could mean that your payments will decrease. Selling the company stock is another option, although the tax implications mean that it may not be best for everybody.

4. Making the Most of the Sale

If there is a gap in time between the sale and the taxes, you can temporarily invest the tax money in a short term investment for a small gain. It is also wise to speak with a financial adviser in order to determine the best way to invest the funds, considering stock options, annuities, CDs, bonds, and other options to fin the best choice.

*Be sure to consult with a financial planner to determine the best solution for your business situation*

About the Author Anthony Benedict helps to run and maintain CreditDonkey.com, an credit card comparision website.

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