The Wall Street Journal had a great article recently that discussed common mistakes made by owners of small businesses who are hoping to retire soon. The article explained that too many owners aren’t prepared for the day when they’ll need to cash out, whether that is because they haven’t figured out what the business is worth or they have ignored the tax benefits of planning ahead. Below is a summary of the main issues cited by financial advisers and exit-planning specialists that retiring small business owners will be faced with:
- Creating a Business That’s Too Dependent on the Owner - Oftentimes the business owner has a difficult time delegating tasks and when it comes time to sell, purchasers perceive the business to be riskier since the owner is the company and may not run smoothly without him/her.
- Ignoring the Tax Benefits of Planning Ahead - Failing to plan for gift taxes in particular can leave the recipient with a large tax bill.
- Incorrectly Valuing the Business - Many business owners are overly optimistic about the value of their businesses and plan their retirement based on those figures.
- Rushing to Accept a Rich Number - The highest dollar amount may not be the best offer. Other things to consider are due diligence requirements, how employees will be treated and how the purchaser will finance the deal.
- Hiring Your Brother-In-Law to Do the Deal - It just makes things complicated, especially when they don’t know what they are doing.
- Underestimating the Emotional Impact of Selling a Business - Owners are emotionally tied to their businesses and when it comes time to sell, they often react irrationally. The key fix for this problem is to map out an exit strategy long in advance.
A little planning can go a long way for your Seattle small business so make sure to take time to consult with an expert.
For more information about Small Business Law in Seattle, consider contacting a Seattle Small Business Attorney.