The First Steps in Selling Your Business

Let’s say that your business is worth $400,000. (We’ll talk more next time about how businesses are valued). Let’s also assume that you are selling the assets of your business versus selling stock. Unless your business is large or publicly traded, you’ll generally sell the assets not the stock. The reason for this is that most small business buyers don’t want to assume your past liabilities. More on this next time.

 

 

In this simplified example, let’s assume that your business owes the bank $100,000, has accounts payable of $25,000 and selling costs of $50,000. (Note: Check with your CPA to determine what tax rate you will pay when you sell your business.) Depending upon how the sales price is allocated, you could pay lower capital gain tax rates versus regular income rates. In the example below, I assumed that the overall tax rate was 20 percent; however, the tax rate varies for each seller and depends on your situation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Price	$400,000
Less: Debt	$100,000
Less: Accounts Payable	$25,000
Less: Selling Costs	$50,000
Net before taxes	$225,000
Estimated tax rate*	20.00%
Estimated tax	$45,000
Net Amount to You	$180,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What to do Now?

 

 

 

In this example, if $180,000 net is not the number you had in mind to give you the retirement you wanted, you know that you’ll have to either increase the value of your business or save other funds for retirement in addition to selling your business. That’s why it is critical to not only KNOW what your walk-away number but have a PLAN to create that amount if your business won’t support that value now.

 

 

Next time, I’ll talk about how to increase the value of your business so you can get the price you want. And I’ll also share some ways to determine what your business might be worth today. Until then, stay focused. You can do this. If running a business was easy, anyone could do it!

 

 

Sheila Spangler has over 25 years of experience working with business owners as a commercial lender and as President of her own business brokerage/advisory company. She has consulted small business owners through the start-up, business planning, buy, sell, and financing stages. She assisted her clients with business valuation, marketing plans, loan packaging and lender selection. She was a Vice President with several large regional banking institutions. Sheila is a graduate of Pacific Coast Banking School, a masters-level program at the University of Washington. She received a Certified Business Intermediary designation and is an Idaho Real Estate Broker. She is a Boise State University alumnus.