Cashing In Your Chips & Pastures New

No, I'm not talking about gambling or dairy cows ? although business is often referred to as a gamble, I'm referring to your exit strategy. That time when you decide to 'play no more' and go off and practise your golf swing. Yup, I'm talking about selling your business?

So you own the show, good for you. You may even have a sign on your desk that says "The Buck Stops Here?But Not For Long" or some other humorous sign. The reality is though that selling your business is deadly serious ? here's why.

--- Split Personalities

You are not just one person. You are two. You are the owner of a business, if the business has shares I imagine you own them. And you are also an employee of the business (probably the GM or CEO). This means you work there too.

So what? Well those two roles, those two people have different objectives. Permit me to explain. The owner is looking for value and wealth, an increasing asset, maybe dividend payouts and other shareholder perks.

The CEO/GM wants a high salary, wants the increased income and they want it now. After all, what the heck has all this hard work been for? Again, what's the big deal you ask? Well if you are a financial whiz then you'll know already, but for most of us its all about the posted business net profits.

If you 'piggy bank' the business and take a high salary then the business probably reports very little as net profit at year end. You will probably pay less business tax to be sure, but you'll also be showing that the business is not profitable? at least on paper.

--- A Low Company Net Profit Is Not So Bad ? Is It?

Yes and no is the answer. We all know that the financial picture you present can be made to look many different ways (and I'm not talking about cooking the books here) just how you choose to allocate certain costs and expenditures. As the CEO/GM you would likely have worked closely with your accountant to develop a suitable tax reduction strategy.

Often times this works against you when it comes time to sell because of the way that businesses are often valued. There are no hard and fast rules but there are a few obvious guidelines used by many for evaluating a business for sale and purchase.

The book value: All the liabilities are subtracted from all the assets and the resulting figure is the equity or book value. (A ? L = E) Boring, but it gives you an idea.

Fire Sale: The value of the business is calculated at liquidation prices. Think pennies on the dollar. EEK!

--- My Personal Favourite

The Net Earnings equation: This formula like all of them is fairly generic, however it does give you a great way to think about things. First of all, it uses the business net profit or earnings, to calculate the figure (Now do you see why piggy banking your business when it comes time to sell is bad!) If you've got three to five years showing a nice steady net profit you can use this to calculate the next part of the equation.

Then using the NE figure you treat the business like an investment and assume that the NE is like the return you'd get on some income sitting in a bank somewhere. If your average net income for the past 3 years is $50,000 then you treat that like the interest you'd make, and figure out how much you'd have to have in the bank to make that much in interest.

For example, if you made 10% ROI then your imaginary savings would have to be $500,000. So if you think you can get 10% and you've been steadily churning out $50K in net profits, then your business would be worth about $500,000 (give or take a few modifiers.)

--- In The Next 3 to 5 Years

So if you plan to sell your business in the next 3 to 5 years you might want to take a good look at the profit your business is showing. Sure moving things around to show a greater profit will likely increase your tax liability, you may even have to forgo some of those bonuses and perks you take. However your business will then look more profitable and this will factor greatly into the overall value that you will achieve when you eventually sell your business.

And that's the whole point in the end.

Author: http://www.JamesBurchill.com - James is a freelance writer and consultant

In The News:

20 Email Marketing Services and Tools  Small Business Trends
Keeping small business in business  Santa Clarita Valley Signal

7 Reasons To Take Control Of Your Small Business? Checking Needs

Business checks are available in many styles and varieties. They... Read More

Finance Your Small Business: So Much Money, So Little Time

$37.4 million funded from venture capital today. $86.4 million funded... Read More

Small Business Opportunities And The Tens

You may find this Newsletter a little long winded but... Read More

FTC Report on Franchise Rule Making; What Purpose?

The Federal Trade Commission out of the blue decide in... Read More

4 Areas Where Your Business is Losing Money

In my 18 years of consulting I have heard it... Read More

Franchise Buyers from Hell

I ran a franchise company for many years, a car... Read More

Bogus Investor and Consumer Complaints and Consumer Misrepresentation

Like most regulatory bodies in the United States, the Federal... Read More

Site Selection - Slice of Life, A Car Wash and Detail Center DownTown

There is a continual trend we are seeing which I... Read More

Will Adding a Car Wash to Your Fast Lube Add Additional Crime to Your Facilities?

Car Wash Crime in the Hood. Apparently not everyone is... Read More

Wichita KS; Anything is Possible in Wichita Business

Just when the entire state was kissing Wichita goodbye, economically... Read More

Why The Carwash Industry is Stagnant; What You Can Do to Change Your Field

Many years ago, I had warned the carwash industry of... Read More

The Benefits of Using Freelance Consultants / Trainers for Your Project

What are the benefits of using a Freelance Consultant /... Read More

Choose Your Own Guru

What is a guru?A guru is a teacher. A mentor.... Read More

Venus Transit - and Small Business?

On June 8, 2004, the world witnessed what no one... Read More

Build Credibility with Expertise

As an Investment Representative you've worked hard to build trust... Read More

Uncover Free Veins Of Gold By Prospecting Online Guru Newsletters (Part 1 of 2)

Incredible as it sounds, you have a goldmine of free... Read More

SBIR - A Nice Add-on Business

If you are a small business and qualify to participate... Read More

Shopping For a Franchise

Shopping for a franchise is easy if you know what... Read More

The Misconceptions of the Value Of Disclosures in Franchising

Disclosure laws in franchising are suppose to help the consumer.... Read More

13 Steps to Protect Yourself from Your Bank

The success of your business is critically dependent on how... Read More

Want to Grow Your Business? Make an Irresistible Offer

My clients and many of my readers are small and... Read More

Motorcycle Detailing Procedures Manual Sample Outline

If you are a motorcycle detailer and need to expand... Read More

Are You Running Your Business or Is Your Business Running You?

Being a small or home-based business owner can be loads... Read More

Arranging Your Fundraiser

When deciding to host a fundraiser for your company or... Read More

Obtain Maximum Results For Your Small Business Through Better Time Management

Most small business owners are faced with so many responsibilities... Read More