Every business owner has a big dream for their business and wants to make it happen. But, the economy, industry trends, and taxes can all make it difficult to exit a business. Many business owners are already tired from the Great Recession and Covid, and navigating these external factors leaves them confused and frustrated. We want to time our sale carefully, plan, and consider alternatives. It shouldn’t be so hard to overcome these challenges and sell a business for a fair price.
I’m working with quite a few firms that are considering an exit. One situation includes a majority owner who has several partners and may be discovering those partners don’t think like business owners and may just prefer to remain employees. It takes a specific mindset to transfer from an employee to business owner.
Another owner is a very successful manufacturer. This owner is a Baby Boomer and is tired from the roller coaster ride that comes with the emotional and financial traumas of the Great Recession and Covid. He wants to sell the business, maybe stay on as a rainmaker for the buyer, but shed himself of ownership and management.
So, what’s standing in the way of our exit?
- The economy can have a big impact on the value of a business. In a recession, the value of a business may decline, making it more difficult to sell. Also, if the economy is weak, it may be more difficult to find a buyer.
- Industry trends in a particular industry can also make it difficult to exit a business. If the industry is declining, the value of a business in that industry may decline. If the industry is changing, it may be difficult to find a buyer who is willing to take on the challenges of a changing industry.
- Taxes is one component of exiting a business that is complex. In almost every case, selling a business for a gain will trigger either capital gains or ordinary income tax.
Here are a few things we can use to overcome these challenges of exiting our business:
- Time the sale of our business carefully. If the economy is strong and the industry is growing, the value of the business will be higher. Additionally, if the tax laws are favorable, the tax implications of selling the business will be less severe.
- Planning carefully for the sale of your business. This includes getting professional advice on finding a buyer who is willing to pay a fair price and on the tax implications of the sale.
- Alternatives exist which could include merging with another company.
Recent surveys show that 80% of business owners will exit their business in the next 10 years. Yet, only 25% have created any sort of plans in writing for a successful outcome. When we exit, it is important to consider all the factors involved. With careful planning and execution, it is possible to sell a business at a fair price even in challenging economic or industry conditions.
