The Financial Plan Benefits When Selling a Business
A financial plan benefit to a business owner is great. Here are some of the reasons why and some of the things you should consider.
What is your Financial plan if you want to sell your business? One of the hardest aspects of being an entrepreneur is staying on top of some things you may not like to do because you either don’t enjoy them or simply aren’t good at them…or both. Doing math back in school just wasn’t fun for me. I enjoyed almost every other subject except anything to do with numbers as there seemed too many rules and exceptions to remember.
Most entrepreneurs do not enjoy numbers. They are happy to delegate the task of debits and credits or journal entries or double-entry book-keeping to someone who enjoys it. Define your core competencies and what you do well and then delegate to other people who have the right skill set and aptitude to do the things they do well. In simple business terms, it is called ‘outsourcing.’
The problem with outsourcing your personal and business finances is that you can lose track of what all entrepreneurs call the bottom line or their net worth. For different reasons, the bottom line tends to move around a bit. I’m not talking about the monthly bank statement bottom line, I’m talking about “taking money off the table” of your business and investing it and moving this into your finances such as your 401K, investing in property, or some other form of long-term investment.
One of the first items to review as part of your financial plan is the legal entity you are using to operate your business. If you operate as a sole proprietor all your assets are exposed should you do something wrong. Changing your legal entity to a Corporation or LLC may offer legal protection but get the right advice from an attorney.
In addition to the legal entity, getting an annual review of your insurance products is a wise and fairly cheap investment. Your insurance agent should be willing to reassess your personal and business needs to make sure you have enough life, death, vehicle, health, business interruption, and other insurance policies.
Another aspect of your Financial Plan is the performance of your business and if you are transferring profit from the business to fund and maintain your retirement. To get the best advice for your situation, talk to a Personal Financial Planner as that is their area of expertise they track trends and performance and can advise whether it’s best to put money into the stock market or other classes of asset allocation. They too have access to a full range of financial products that not only cover investing for your retirement but insurance products, and short and long-term investment strategies.
The above are all personal or external reviews of your finance. An equally important aspect though is the business. A lot of business owners do an annual check-up just before handing over all their documents to their accountants to prepare and report their tax returns. What, however, is a good strategy is doing at least a monthly review of the performance of the business and there are several reasons for this. This especially applies if the owner of the business has another member of the family or an employee looking after the books. Whether we like it or not, this recession has seen an increase in theft from businesses from those entrusted with handling the books. Money can quickly disappear if frequent reviews are not in place. A simple strategy of getting a copy of the monthly Profit and Loss Statement, check stubs, and bank statements can allow a series of questions and answers to quickly reveal whether or not things are in order. This is because you allocated expenses to a category on the Profit and Loss Statement. Doing a test each month on some of the larger categories to make sure there is nothing unknown reveals if you need to do any further checking. These tests need to be random and sometimes with little notice.
Finally, if you are looking to buy your business, it will be important to have your Financial plan in order. Buying a business includes knowing what cash you have available to use as a down payment to buy a business. If you plan to borrow money from your inheritance or a family member, get a letter in writing so you can show it to a seller and the bank lending you money.
You can also borrow money against your 401k plan. This takes time to put together, so make sure you allow the lead time of about 30 days to make this happen. Other parts of your financial plan to get in order are your credit score and credit report. Most third-party lenders are looking for a credit score of at least 700. It’s also critical to check your credit report to make sure there are no errors on it. Do this as soon as you can as errors take time to correct. Although not related to your Financial plan, it’s also important to have an up-to-date resume to show lenders and possibly a business seller if you are asking them to carry a note on the purchase price.
One of the main reasons for being an entrepreneur is so you can enjoy the fruits of your labor. Being an entrepreneur allows you to follow your dream instead of working for someone else and building your dream. Having a quality and credible Financial plan should be part of your success strategy. And remember, just as our fitness changes as we journey through life, so does our financial situation. We recognize that going to a doctor or dentist is good for our health, equally good is talking with different financial professionals including estate attorneys to make sure our Financial plan is in order is just as important.
If you would like to know the value of your business, give me a call on 916 570-2674 or email me at Support@RogersonBusinessServices.com If you click the following link it will allow you to see a sample Brokers Opinion of Value.
