Why Two Million Dollars May Not Be Enough
Not everyone wants to sell when they feel as though they have to sell. Life changes, such as divorce or illness, can trigger the sale of a business. Owners may want to sell because of declining business revenue to partnership problems and more. But owners may find that selling isn’t always an option, especially for small businesses. In this article, we will take a closer look at just such a situation.
The business we’re discussing is a successful distribution business, which is also a classic example of a value-enhanced business. The two owners each draw several hundred thousand dollars from the business each year and get a range of other benefits. Hypothetically, the business was to sell for $2 million dollars, each of the owners would receive approximately $1 million. Of course, this sounds like a sizable amount. So, what is the problem?
When one stops to factor in such variables as taxes, closing expenses and debt, that $1 million-dollar number has shrunk dramatically, leaving each owner with much less, perhaps as little as just two years of income. In such a situation, selling isn’t a great idea. Many owners of small companies want to “cash in” and retire only to discover that their business isn’t worth enough to do so.
Owners who want to retire but can’t afford to do so are in a difficult position. Such owners may have already “checked out” mentally and in the process, have lost their focus resulting in a failure to both invest financially and creatively in the business. In turn, this decreases the value of the business even more as competitors may likely move in to fill the void.
So, what does all of this mean for business owners? Business owners should avoid getting stuck in this position. Instead of checking out, business owners should plan to sell at the optimal moment, which is when a business is at its high point and the owners are not considering retiring and feel as though they have to sell.
Determining when is the best time to sell can be one of the single smartest business decisions that a business owner ever makes. Working with a professional and experienced business broker is a fast and simple way to determine if the time is right to sell your business or if you should wait. Waiting until the optimal moment to sell has passed you by could be a painful experience.