As a business owner, you are going to be surprised by a number of challenges that pop up out of nowhere, but one potential surprise can be avoided with proper individual financial planning.

Mergers and Acquisitions

The mergers and acquisitions market has been hot for several years. Although it has slowed some in 2022, it is still a very active market. Overall, deal volumes declined slightly in 2022 due to market uncertainty, but the volume is still 9% over pre-pandemic levels. Additionally, private equity firms still have a significant amount of cash on hand that they’d like to deploy and they’re making offers to businesses that aren’t for sale. If that happened to you, would you be ready to accept the offer? Do you know what your business is worth? And most importantly, what is the number you need to make sure your goals are met?

Here are a few items to think through during your financial planning process to be ready just in case you get an unexpected offer to sell.

What to Consider

Number one: is your business in a good position to be sold? By having a thorough understanding of your business, you’ll be able to determine strategies or areas of focus to improve your business. Knowing your strengths and what to focus on is great, but even more impactful than that is understanding your weaknesses so that you can address prior to due diligence.

Number two: taxes and estate planning. Proper financial planning will cover both taxes and estate planning, as this could be a major hit to your sale amount if not taken into account. Depending on the size of the transaction, this could have a significant impact on your heirs for estate planning.

Number three: what are your goals and vision for the business post-close? Do you want to make sure the business continues to operate with the current employees? Would you like to stay on for a period of time to ease the transition? Or maybe your situation dictates that you continue working for a few more years? By thinking through all of those scenarios, you’ll be able to identify what is the best buyer for you and your goals.

Number four: what’s the current value of your business versus your magic number? Having a good understanding of both numbers is important as you can confidently decline offers that aren’t in your range, which will save you time and aggravation, while offers that are close to your ideal number, you’ll be able to start negotiating with data to support your rationale for a higher value. The vast majority of business owners will only go through one transaction in their lifetime.

So take your time. Make sure you’re getting the right number out of it before jumping in too quickly. You don’t want to have a situation where you sold too low or too early and now your retirement plans are being sacrificed. A detailed financial plan can help formulate answers to those questions, which will provide a base framework for what could happen unexpectedly.

At Wealth Dimensions, we are well versed in business transactions and we can help you think through a variety of scenarios.

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