We all know that it’s important to see a doctor and dentist regularly but I would argue that it is just as important to meet regularly with a financial planner.   Your life constantly changes… and we like it that way, but it is still important to think ahead and make sure you’re going the right direction.  As an example, I went swimming in the ocean, thinking that the challenge of the currents and waves would add a new element to my exercise program.   I thought the swell and wind would be the challenge but what I found out was the biggest hurtle was keeping my direction straight.  I wanted to swim along the beach, outside the surf line, but since there was no line to follow, like the bottom of a pool, I was swimming all over the place.  I eventually got there but I had to work much harder and longer than I planned.

Estate planning is the same way as the line on the bottom of a pool.  You can keep your head down and swim as long as you have a plan that your trying to follow.  Every once in a while you will need to lift your head up and look around, re-adjust your direction and start going again.  All that I’m saying is a dream, without a plan, is a wish.  Read that again and think about it for a minute.  If you have no plan, then you only have a wish.  Some wishes come true but more likely than not, you end up tired and just want to quit.

The world of estate planning is complex with many options available.  In a very basic sense consider setting up a will or trust for the family when you die, life and disability insurance to cover the costs of your burial/injury, investment opportunities for future cash flow and a personal budget to manage expenses.  All of these areas have specialists if you have a complicated estate, but for the typical person like me, it doesn’t take a whole lot of time or money to put a plan in place.

Take the time, make the time, and plan for the exit of your business and the exit from this world.  We all eventually leave this planet so you can’t say you didn’t know.  Make it a little easier on those you leave behind and put an estate plan together today.

First, there are business considerations associated with closing down and they relate to the government, debt resolution, asset liquidation, and employees.  My first recommendation is to set an appointment with your CPA and discuss your specific situation.   Our goal is… to maximize your take home pay, so understanding your taxes is very important.  If you sell any assets, write off receivables or debt, short sale any property or pay for any professional fees, they all have tax ramifications.  Talk to your professional and see the best way to minimize your taxes.

On the operations side, a quick glimpse of the items you might have to consider is filing your final corporate tax return, settle up your sales tax with the Board of Equalization, and file your last EDD or employment report.   You might have leases to cancel and settle for the office, storage, vehicles, copy, and mail machines.   There might be some money owed back to you for deposits like a lease deposit, workers comp deposit, and general liability deposit.    You will have to notify all of the above plus close the company 401k, medical plan, and bank accounts.  Each business is different so just be aware that there are numerous items that need to be settled before you can move on.

On the personal side, there are also many options to consider before/after closing down.  There is estate planning, life coaching, and personal financial planning.    The largest and most complicated area to consider is estate planning.  This encompasses wills/trusts, retirement plans, life/disability/medical insurance as well as reviewing all the charitable options.  I would strongly suggest that you meet with a professional financial planner to discuss your specific situation and needs.

Another area to consider is life coaching.  Life coaching has moved into the mainstream over the last 10 years and right now there are thousands of advisors that can help.  They are not counselors or therapists but coaches that have been trained to assist you into the next phase of life.  Like you would expect from a coach, they help you set personal goals and objectives and then keep you on track to obtain the results you want.

Finally, and I personally believe most importantly, are your personal finances.  Most people do not have a family budget or use Quicken to track their expenses.  Now that you do not have an income, it is crutial that you manage your money.  There are wonderful products online that allow you to track your income/expenses and there is no reason why anyone should not be able to manage their personal accounts.

In summary, please be aware that there is still another step after selling your business and it is just as important as all the rest.  You need to wrap up all the loose ends and make sure there are no open items that will come back and bite you.     Make sure you review everything with your professional advisors so when you walk out, you never have to look back.  Congrats!!

I am no attorney or CPA, so this is not legal or tax advice, but it is real life advice.  Every business owner should know what type of corporate entity… they are along with the positive and negative consequences of each.  In a quick overview, the most used corporate entity types are C, S, LLC, LLP.   From a legal perspective and sheltering your risk from your personal assets, they are similar but for tax purposes there are significant differences. 

I am only discussing the tax differences as it relates to the selling of your company, not running your company.  Basically there is a significant fork in the road regarding taxes if you are a C corp vs all others types of entities (S, LLC, LLP).   The reason is that if you sell your C corp then the company must take the income from the sale and pay corporate taxes on the gains (approx 15% fed and 10% state) before any proceeds can be distributed to the owners.  Then, when the owners are distributed the proceeds of the corporate after tax money they are taxed again on their personal returns as a profit/gain.  This is considered a double tax and will cause a consolidated 50%-60% tax burden if not strategically handled.  That’s the bad news.

The good news is if you are a C corp and you can sell the stock of the corporation instead of it’s assets (usually very difficult and at a lower price) then you are taxed only at the individual tax level, just like the S, LLC, LLP.  This prevents the double taxation and thus more take home pay.  Now there are advisors that specialize in C corp transactions and say they have different ways to structure an asset sale of a C corp to minimize the double tax but they all seem a little risky to me. 

Now it is possible to change your entity type as to minimize this risk in the future.  The legal process is not difficult but the IRS is not going to let you go that easy.  Basically, if you change from a C to anything else to help minimize the double taxation, there is a 10 year tail where the IRS still requires the corporate tax step.  There are numerous strategies available to deal with this tail but you will need to find an advisor to help you.

The point here is that it is extremely important that you become aware that your entity type and that it does matter as it relates to the selling of your business.  Change is possible but you will want to do this asap and with some help.  Knowledge is power, so learn what your company is and make sure you are planning for your exit.

So I thought it would be helpful to get his opinion on assisting people in the selling of one’s business from a coaches perspective.  We talked about many different feelings that owners experience and, like so many conversations we have had in the past, we got into the real issue.  The fundemental question that any business owner needs to reflect on is what do they want to do after they sell?  Most business owners say they want to retire, but actually they just want to do move onto something else.  I try to advise them that the term “retirement” and sitting on your swing porch every day with a glass of lemonade reading a book will last a while, but not long.  It’s not because the seller needs to work, they could be completely financially secure, but it is just who we are. 

Entreprenuers are a breed or class by themselves.  This is not to be an insult because I am one myself, just accept who you really are.  They are self motivated, over achieving,indepedent thinkers who NEED both mental and physical stimulation.  The concept of retirement is nice and definately works for some sellers, but the mass majority of them get involved in something after they sell their business.  So as we talked, retirement is the current politically correct (PC) term, but in reality, most people transition into the next phase of their lives.

 A coach, and they can be perosonal, life or business coaches, are trained to help people in this transition.  The market has expontionally exploded over the last 10 years and if you Google ”business coach” you will find thousands of those professionals.  My suggestion is that this transition is both a business and personal process.  A coach will help you through the process and into finding your next adventure.  I would recommend finding your own coach whether you are transitioning now or are looking into the future.  They are a great additional advisor on your team.

In evaluating whether you can afford to sell your business there are a couple of suggestions I would like you to think about.  First, you need to come up with an existing personal budget that you are currently living on.  Some people track… their personal financials on Quicken and others do it manually, either way you need to know what your monthly take home requirements are right now.  Even if you don’t have a monthly budget, write down for three months every dollar that you are personally spending.  If you take out cash, then just write down “cash” on the pad of paper.  The desire here is to determine how much, not what, you are spending your money on.  After three months of tracking expenses, you should have a good idea of how much you are spending.

The next step is to look at your Company books and determine all the personal expenses you’re writing off now and you will have to pick up personally once you leave the Company.  Examples of this are vehicle gas, insurance, repairs, cell phone bills, travel, meals, entertainment, etc.  Basically, any costs that you will have to pay for after you leave the Company.  Add up all these costs and then multiply them by 1.4 in order to determine how much pre-tax income you will need to cover those costs.  For tax burden projections, I’m using 25% Federal and 15% State, so that is how I get to 40%.   As an example, let’s say that you have a friend (not you, since you would never write-off personal expenses) who is spending personally $200/mo on gas and charging it through the Company books.  You will need to make $280 ( $200 x 1.4) in salary/wages or pre-tax income to pay for that personal expense. 

So take your current living requirements and add to it the new personal/business expenses and you will come up with the new family budget.  Look at the monthly requirement and determine if you can afford to sell.  You might have other sources of income, other investments or another business opportunity that can make up the difference, but either way, you at least have a fair and honest way of evaluating if you can afford to sell it.   Take this information and put it in your business tool box and take it out when it comes to evaluating your sale.

First, let’s make sure that I am only referring to business issues here, and am not a shrink nor counselor.  You will have to deal with your personal emotional life on your own.  I am here as a fellow SBO who has been there before and am only qualified to help explain and advise you on the business side.  My only advice is to be ready for a bumpy ride.  Just be aware… that you have made a very big personal decision that affects you, your wife, and your family and not everyone will be happy with you.  Excluding your own personal feelings, your employees might feel deserted and left behind, resentful that they helped you and then you left,  your family might not want you around in “their space” now that you don’t go to work and your loyal customers and vendors might be jealous or angry.  Throw all of this on top of your personal struggle and exhaustion with a topping of buyer’s remorse, and the fantasy has yet to be realized.  I’m not saying you won’t get there, it just takes time and more work.

Putting the emotional side away for a moment, there are still some business requirements that need to be attended.  First, most businesses are sold as an asset and not a stock purchase, so you still have a Company that you own after COE.  It might be a shell, since you sold all the assets, but according to the government it is still a working Company.  So you need to look into what is required to dissolve the Company.  If you had employees and a 401k then you need to close those out.  You might also need your last worker’s comp and general liability audits to get the deposits back.  Also, don’t forget about all the credit applications with your vendors over the years that have personal guarantees on them.  If you don’t manage to close them up your credit can get hurt very quickly and for me it was from an old account I didn’t remember we had.  You also have your Company bank accounts, final bills, and rent deposits to settle up.  You might have business licenses, IT or patents that need to change.  You have personal expenses that you have run through the Company (I know not you or me but this is for everyone else) and vehicle registrations that need changing.

What I’m trying to say is that closing down a business can take a few months so plan on it.  Work with your CPA and attorney for help and set up a check list as you think of things.  Please do not think that COE means you are done, it only means you are transitioning into something else.  Entreprenuers are never done, we might sit on the sidelines for a little bit, but we are never done.   We see new ideas every day, in everything, and that’s ok.  Enjoy this time of the business cycle and learn from it.  Take time to reflect, evaluate, and re-energize and then see what you can now do with your time.   Good luck and pay it forward!!

The first step is to find a buyer who not only can afford to pay you but also will be a good fit for the Company.  I don’t mean to understate this step because in my opinion, this is by far the hardest part and where most time is spent in the process.  Obviously, just like selling your house, you can either sell it yourself or hire a professional.  If you chose to DIY (do-it-yourself) then you will need to network, locate potential buyers, and list it online.   Most SBO’s start here because that’s just who we are.  The one personality trait… consistent in entrepreneurs is their self confidence, so give it a try if you want but just know that there are other options.  If, on the other hand, you chose to hire a professional, then generally the professionals available are Business Brokers, Merger and Acquisition (M&A) Advisors, and Investment Bankers.  The difference between them is the size of companies they represent and the services they provide.  As in all service companies, it is usually more about the person you are working with than the title, so ask around, interview, and research before you hire someone.

Once you have an interested buyer then the negotiations come next.  In a real estate transaction this happens on an offer/counter offer document, but in a  business transaction, it is often handled in a LOI (letter of intent).  In the LOI everything is written down from the price and financing, to the date of close and details to the non-compete.  If you are doing this yourself then write down everything you have both agreed on so there are no misunderstandings.  Once the LOI is signed by both parties then enter escrow with deposit money and the due diligence process starts.

The due diligence process is for the buyer to verify and validate everything the seller has said.  It is the same as buying a used car, when you look under the hood, check the engine, hire a professional to do some tests and generally make sure that everything passes the initial inspections.   Most areas of focus are the financials reporting/process, customer base, sales back log, employee job descriptions and skills, and any fixed assets that the Company owns.  Then they look at the liability side and review leases, contracts, any claims. and debt financing arrangements.

During the due diligence evaluation often the attorney’s are writing up the purchase and sale agreement and required supplemental supporting documents.  These documents use the outline of the LOI and put substance and legal definition to them.

Finally, the buyer’s financing is pulled together as you get closer to the close.  SBA supports many SBO purchases and they have it down very well.  There will be additional documents required by both the seller and buyer since they bank is lending on the Company and buyer strengths.

At the end of escrow and with the SBA lender approval, you all meet together and sign the legal and financial documents.  The complete process of listing and selling your business will take 6-18 months so be prepared.  Once again this is a general overview and exceptions do apply, but be prepared and understand the steps.

There are three major steps in the selling process. The first, and the one we are talking about today, I define as the preparation of the sale.  In preparing to sell there are three steps to go through and they are self prep, business prep and buyer prep.

Self preparation can be broken out into… emotional, physical (time), and financial.  The emotional step is actually the hardest step of all and blows more deals than anything else.  The reason for that is that our business as an SBO is a love/hate relationship.  We have our self worth, social power, prestige, and money in this business and, for many of us, we have grown it from a baby to an adult.  Change is hard and most people don’t like it.  This change is completely self induced and you will reconsider it more than once during the process.  The physical or time requirement will be 10-15 hours a week that you will need to dedicate to this process.  If you are like me, I don’t have another 15 hours a week and finding it will cost somewhere else.  I understand, but if you’re not prepared for the time, don’t start.  That’s ties to the financial prep, you need to understand how much money you will be required to walk away with and then stick to it.  Find your minimum break point and know where that is so get deep into your personal finances and know your bottom line.

Business preparation is getting cleaned up, evaluating a price, and finding an advisory team.  You will be required to clean out the old crap in the storage room, dust off the 286 Dell computers and paint the office.  Don’t argue, just do it.  A fresh, clean look is always well received.  The next is price and every business owner wants to know what their business is worth.  Let me tell you a secret, it doesn’t matter.  I say that, just like I tell everyone, it is not the price that is important, what’s important is how much you take home after taxes.  Honestly, listen to me here, a good advisory team takes price into consideration but the structure of the deal is really what you should consider.  I know, fight me on it if you want, but it should always be about the net not gross.  Now moving onto the advisory team, this team can be made up of as many as you want but usually they include a CPA, attorney and a transaction coordinator (broker, consultant, investment banker).  Remember a team is only as good as the coach, so make sure someone can coach and lead the team.

Buyer preparation is about you determining who your best buyer would be and they generally break into three categories – Financial, strategic or in-house (family, employee, friend).   Financial buyers are those that look at your Company as a return on investment, like a CD or savings account.  They usually pay less but can cash you out. Strategic buyers are competitors or other similar businesses that when added to your Company make them better.  This theory is the 1+1=3 and they are the highest payers.  Finally, in-house are the easiest to find and least difficult to negotiate, but generally have no money.  They usually want significant financing and the sale becomes more of an annuity than an out right sale.  None of these are right or wrong, just be aware of the general categories of buyers.

So, after you have evaluated yourself, your business, and your buyer, you are ready for the next phase called - Let’s make deal.  Read part two tomorrow and your comments are always appreciated and encouraged.

There are two significant hurdles you need to be aware of when selling your business.  The first one is why the value of your business equals your sales price.   Remember, value is perception and price is cash so you must understand the difference.  This is a once in a lifetime decision for most buyers and, besides their house, probably the biggest transaction they will ever deal with.  You have to be prepared to validate what they are getting for the money.  This is no easy… task since value is only a perception, not a reality.  Value changes over time, both higher and lower, and can even change while negotiating a deal.  Here is an easy example: the value you have put on a family heirloom is probably worth more than the purchase value.  You will need to convince the buyer that your Company’s assets and income are a safe value for the money.  However you can address this concern in your business, the better chance you have of selling the business.

The other major hurdle is convincing them that your business operation is better than the others on the market.  You need to see who your competition is on the market because, be assured, that the buyer definitely is out there looking.  Your business is a product, maybe a very specific product, but a product with a sale price and perceived value.  Much of the perceived value is determined by what others are selling their businesses at.  The more educated you become of your competition then the better you will know how to present your business.  You need to evaluate other businesses for sale and be able to explain why your business is better/different than the others.   You might be surprised to see who is out there and adjust your price accordingly.

If you can validate your price and prove you are better than the others on the market, then you have a much higher chance of finding one of those elusive buyers.   So go online and do research.  Ask your business broker to run comps and then learn about your competition.  Don’t expect your broker to know your business better then you do. You can represent your business better when you understand the differences.

Finally, target your buyer and think about how they will deal with each of these hurtles.  If your business industry, product or service is not unique and there are a ton of others out there selling right now, you will need to separate yourself from them somehow.  Know your price, your value, and competition and you are well on your way to selling your business.

I, being more pragmatic and numerical in my judgments, define success as maintaining a business venture until you voluntarily choose to leave it.  What I’m getting at is that passion comes and goes, financial gains come and go, and need for control comes and goes, but if you can keep your business afloat so it fulfills your predetermined goals until you choose to close it, then it is a success.  The problem is, most businesses close before the owner… wants it to because they run out of capital (cash).  This is business 101, you need capital to have a successful business.

For most start ups, the number one reason for failure is they run out of cash.  Not passion, drive, desire, time, energy, product, support, skill, intelligence or aptitude, just not enough cash.  It takes cash to start a business and then even more to grow your business.  Everyone who has ever run a business understands the term “cash is king!”

If you follow me on this logic then I think it is better to buy an existing business then start new.  Statistics show that over 50% of the start ups fail but only 30% of the acquired companies fail.  The whole market of buying a franchise is based on this fact.  I think the main reason for the higher success rate is that the existing businesses have already gone through the learning curve and cash flow high risk growth problems.  If you take the same exact business and start it from scratch or take it over 5 years down the road, I personally believe the acquired business is a smarter way to start.  Please don’t mistake what I’m saying. Not all existing businesses are run well, have no cash flow issues, and are better than starting debt free, just that if all else is equal, I will take debt to acquire the business over the years to start and make the business.  If you disagree, then why are so many start ups failing right now and those that make it are being purchased by an existing, bigger company?  Success breeds success and failure breeds failure.  Find a successful business and you will start off the entrepreneurial race running strong.