Selling Your California Business in 2020
Is your business at the top of where you feel you can take it, and it’s time to cash out and transfer the risk to someone with new ideas and fresh enthusiasm? Is it time to retire and ‘smell the roses’ after owning and operating your California business for all these years?
Is that burning desire to take your business to the next level no longer enough to get you out of bed each morning? Have you ‘climbed the mountain’ and achieved all your personal and financial goals for your business and now you feel like it’s time to do something else?
Is your life about to change with a divorce, a dispute with your business partner, or a health issue that says ‘it’s time to sell your business’? Is your business changing too fast for you to keep up due to new technology?
There are countless reasons you might be ready to sell your business, and the reason doesn’t matter. But if you are in California, selling your business is different than if you were in other states.
Great Things About California
From my perspective, California is a great place to live and raise a family. It has it all with the sun, surf, sand, and mountains not too far from each other. Southern California, if it was its own country, would have the 6th largest economy in the world.
In Northern California, we have the tech industry disruptors in Silicon Valley, the financial and tourism districts of San Francisco and the depth and variety of the Central Valley with its farming that produces about 40% of the food and agriculture products that are consumed in the US.
In addition, the state Capital of Sacramento is undergoing a large amount of change with a new downtown stadium, development of the Railyards for the new soccer team and so much more with many relocating from the Bay area and its high cost of living.
As they say, California has it all.
Challenges of Doing Business in California
With a strong economy and approach to politics that is left of center, California is one of the more difficult states in the United States to own and operate a business. California leads the nation with its approach to increasing the minimum wage, and our labor costs are higher than the national average.
In 2020, California will be the first state to have come into effect a set of Privacy Laws with how businesses will need to treat the personal data of their clients similar to the GDPR already passed in Europe. Websites and privacy policies will need to be updated across the board regardless of your industry. If you are in the healthcare field this will be even more important.
Regulations regarding who is and is not an independent contractor due to Assembly Bill 5 will take effect this year, so if you hire contractors or are one, you may have to reevaluate whether or not they will have to be classified as employees.
With Silicon Valley being the home of much new technology, disruptions of business often start there first and move through the California economy; another pressure point for business owners.
California and Business Regulation
If doing business in California was not difficult enough due to the above factors, California already has more regulation to protect consumers than most other states.
To own and operate a construction business, the owner of the business must have a license with the Contractors State License Board of California.
To own and operate an auto repair business, the owner of the business must have a license with the Bureau of Auto Repair, a permit with the EPA and more.
To own and operate a business that advises patients on medical needs, the doctor must be licensed with the Medical Board of California and requires its doctors to meet California standards. That is, if a doctor wants to move from another state in the US, it doesn’t mean that is acceptable to the Medical Board of California.
And so, it goes on.
Plus, the California economy is strong, and expectations are it will get stronger. Consider the following big-picture data from First Research.
- State job growth rose 1.8% in October 2019 from a year ago; national job growth rose 1.4%
- State unemployment averaged 3.7% in October 2019; the national average was 3.6%
- Personal income rose 5.2% to $2635.3 trillion in Q2 2019 from a year ago.
- Tax revenue increased by 8.3% in Q2 2019 from a year ago.
- Exports fell 2.8% to $117.4 billion in the first eight months of 2019 from a year ago.
- The minimum wage is $11.00 and exceeds the national rate of $7.25.
Some of these things are due to the current trade wars, and others, like the low unemployment rate, while good for the economy means that you will be competing with other companies for top employees in your business niche.
Buying or Selling a Business in California is Different as Well
While many states do not require it, escrow is required whenever a business is sold in California. This means that a third-party handles much of the transaction process, just like when you purchase a home.
Steps in a business transaction during escrow include:
- The bulk sale process.
- The Purchase Price Allocation
- Property taxes
- Franchise transfer fees (if applicable)
- Business license applications
- Getting a clearance from the California Employment Development Department
- Getting a clearance from the California Department of Tax and Fee Administration
- And so much more.
If you would like to learn more, click this link to a page on my website about how escrow works in California (https://www.rogersonbusinessservices.com/escrow-and-a-business-sale) and the different services that are part of the escrow process.
There are other differences as well, including legal and taxation issues.
What does all that mean? When you do sell your business in California, you’ll need the help of a team of professionals, and that’s where hiring a business broker comes in. Not only will a Certified Business broker help you with the escrow process, but we can also help you with everything from business valuations to finding the right buyer at the right time.
Ready to sell your business in California this year? Just want help in knowing what your business is worth and developing an exit strategy? Contact us today here at Rogerson Business Services. We’d be delighted to be your business broker.
