On Money & More – October 2023

The broader US economy is built upon the successes of small businesses. In fact, there are nearly 27 million small businesses nationwide! And Jacksonville is no exception. As anyone can tell from walking down California Street, small businesses are the lifeblood of our community. As an entrepreneur, you work hard your whole life to build up your business, one client and sale at a time. Hopefully, at a certain point, you begin to think about life after the 24-hour-a-day job that is owning your own business. While each situation is unique, what are some of the things you should be thinking about as you approach this critical next step?

Selling a small business is not merely a transaction; it is emotional and stressful. It may involve questions about your legacy. Sometimes, this is a carefully orchestrated process that can take years to complete as you mentor a successor over time. Other times, this can be a “shotgun” wedding as circumstances accelerate your timeline for a sale. The sooner you begin to think about possible exit strategies, the better prepared you will be when the time comes to make that decision. Don’t hesitate to broach the subject early on with those who might be possible buyers. A conversation won’t force your hand, and setting some expectations might help when you eventually “pop the question.”

Valuation is always a key part of the negotiation. There is no “Zillow” for a small business that will tell you what your company is worth, and valuation experts might be an additional cost that you aren’t interested in bearing. But, if you’ve been in your industry for a while, you probably have a pretty good idea of what other firms sell for. How does your company compare? Are your client relationships “higher quality” than average? What about your average ticket price? How much of your business will stick around after the sale, and how willing are you to make sure that happens? All of these factors will impact what a buyer will pay, and what you should ask for.

Asking a CPA for tax advice can save a lot of headaches down the road. Is all of the sale going to be at a preferred capital gain tax rate? What is the cost basis that will be used, if so? How much income will there be from any trailing revenue? Having financial statements current and accurate can help a CPA provide meaningful advice, so make sure to get your ducks in a row.

What about the services of a business broker or M&A advisor to confidentially market your business? This has some benefits, especially if you don’t know of any prospective buyers. The advisor can provide guidance on valuation, and perhaps ways to maximize your business’ price. On the other hand, it is another mouth to feed that reduces your overall buyout.

Prior to selling your business, you should begin discussions on how you wish to structure your retirement assets. Hopefully you have been saving for retirement, and hopefully you also will have a nice cash infusion from the sale of your business. “Wealth management” is a critical part of developing a plan for the next chapter. Transitioning from an income-based budget to a fixed income budget can be difficult for many people. At Cutler our wealth management advisors can assist you with developing a realistic plan that suits you, your needs, and your future. The most important step is to simply get the conversation started.

All opinions and data included in this commentary are as of September 8, 2023 and are subject to change without notice. The opinions and views expressed herein are of Cutler Investment Counsel, LLC and are not intended to be a forecast of future events, a guarantee of future results or individual investment advice including the asset allocation provided. Nothing herein should be construed as tax advice. This article is provided for informational purposes only and should not be considered a recommendation or solicitation to purchase or sell securities. This information should not be used as the sole basis to make any investment decision. The statistics have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Investing involves risk, including the potential loss of principle. Neither Cutler Investment Counsel, LLC nor its information providers are responsible for any damages or losses arising from any use of this information.