24 May Around the Web: A Week in Summary
A recently published article from SunbeltNetwork.com entitled “How to Sell Your Business and Retire” outlines some of the most important steps involved in preparing to retire from and exit a business. One of the obvious questions to ask is whether or not you are ready to retire and if it is financially feasible. Americans today are typically living longer, and therefore working longer, so it is important to know how you stand financially to determine whether or not now is the right time to exit.
After determining that now is the right time to sell, finding out what your business is worth is the next step, and arguably the most important. Hiring a business broker for this is imperative, as they have the experience and knowledge necessary to give you the most accurate and detailed valuation on your business, placing you in great position for a successful exit. This valuation can help determine an appropriate exit strategy as well as help give an approximate timeline as to when the owner can expect to retire.
Finally, owners looking to sell and retire should have a solid plan for their future. Giving up such an important emotional investment can be difficult, especially considering the time and financial commitment they have put in over the years. Having a plan laid out ahead of time can certainly help an owner deal with their new life outside of their business.
A recent Divestopedia article entitled “The Importance of Projections in Determining Business Value” shows how projections can be vital to the appropriate and accurate valuation of a business. While some may disagree, projections, when computed correctly, can help drive an accurate and true value for a business. The author states that past performance, whether positive or negative, is used anyway as a determinant of value on the buyer’s end, so projecting for the future only makes sense in determining value.
Projections help sellers get inside the buyer’s head during the sale process: understanding the risk/reward relationship within a business is vital to a prospective buyer, so understanding how they perceive risk and value is important when determining the selling price for a business.
A recent article from the Denver Business Journal entitled “How SBA Loans Can Help Fund a Company Acquisition” identifies the SBA 7(a) loan program as an option for buyers that don’t have access to private equity capital or the personal finances that would allow for the purchase of a business on their own. The article outlines several different requirements and rules for prospective buyers seeking these loans, which include but are not limited to:
- 25% down payment from the buyer
- Complete disassociation of the seller from the business, either as an employee or a board member (may stay as independent contractor for up to 12 months)
- Loans are capped at $5 million
While SBA 7(a) loans may not be right for everyone or every situation, they are available for a vast majority of prospective buyers and can be a very valuable tool for a business transaction.