T HE MOMENT ARRIVES for every successful business owner: You start thinking about what it would be like to sell the business, name a successor and create a legacy that makes you proud. The economy is still processing the pandemic, of course, as it will be for a while. And according to data from Barlow Research, the median retirement age of small-business owners was 67 at the start of
And again, the pandemic complicated everything. Consider a recent post from the American Institute of CPSs (AICPA) which speaks to the impact of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The post offers insight for CPAs conducting business valuations and recommends they consider factors such as: • Paycheck Protection Program (PPP) loans. Depending on the nature of the business and the
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the pandemic. Survey data from the Federal Reserve Bank of St. Louis, meanwhile, describes a retirement “boom” as 2021 began. And Forbes notes that from 2020 to 2021, 62% of business owners said they hadn’t taken a vacation, and 45% said that running a business had a negative impact on their well-being. The upshot? Even as economic conditions continue to rebound and companies regain their footing, many business owners find themselves wondering if it’s time to make the move. Maybe it’s as simple as taking a step back and letting someone else take charge. Or it could mean selling your business to a friend or family member, or maybe even shuttering the company and selling off the assets. No matter the approach, however, there’s a big distance between the notion of creating a legacy you’re proud of and making this idea a reality. It’s a big step that takes careful planning. So if you’re ready, or if you’re preparing to take this step in the future, here’s your step-by-step guide to selling your business and taking the first step toward your legacy. Step 1: Calculating your business’s worth How much is your business worth? It’s not an easy question to answer. While the number in your head reflects years of time, hard work and perseverance, the market value of your business is largely dependent on external factors that fluctuate significantly over time.
timeline of a loan application, some companies may be eligible for PPP loan forgiveness, which in turn impacts their overall market valuation. • SBA Debt Relief. As noted by the AICPA, the Small Business Association (SBA) covering six months’ worth of Debt Relief Program payments has a direct impact on cash flow and net income, which may increase total valuation. • Past and future financial results. While many businesses used CARES funds during the pandemic to remain in operation, some were already on the brink of collapse before COVID challenges made it impossible to stay open. As a result, evaluation of pre-pandemic financials and the use of CARES funds must be considered to determine the potential results of future operations and in turn the value of the business. • Comparable business use of CARES Act provisions . The AICPA also recommends that accountants examine how comparable companies in the market benefitted from CARES provisions and how that impacted their bottom line. This provides a general benchmark for valuation to provide a more accurate market value. Before getting in touch with a CPA to start a formal valuation process, however, it’s worth doing some quick math yourself to get a general sense of your business value—and, if it makes sense, to start the sales process. Three calculation methods are common.
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