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

---

Money Series 1: Who Takes Your Money

Your business is making profits, but where is the cash?... Read More

Have You Thanked Your Competitors Today?

Competition in the business world is often viewed as a... Read More

Business Failure, The 8 Traps Causing Failure And The One Attribute Which Ensures Business Survival

It is estimated that 78% of all small business start-ups... Read More

Image of Your Franchise Automotive Outlet is So Important

Image of your franchise automotive outlet is so important. Some... Read More

How Most Business Owners Sabotage Their Success

Owning a business is a challenging endeavor. If you're like... Read More

Joint Venture Your Way to Extraordinary Sales!

You know what makes me really happy? Drinking a Starbucks... Read More

Australian Workplace Agreements - How They Work For You

The employer / employee relations environment has been constantly evolving... Read More

Small Business Owners - They Owe You The Money Why Dont They Pay?

Doesn't it frustrate you when you've given good service, sometimes... Read More

Breaking The Chains!

Everyday, customers and business owners are bombarded with billboards, logos,... Read More

Naming Your Business: 3 Tips To Ensure Success

If you are just starting your business, or if you... Read More

More Business Card Marketing

If you are worried about how many different business cards... Read More

Business Debt Collection Letter Writing Secrets

Debt collection letters--an overview"Debt collection letter" in the singular may... Read More

Boat Detailers; Add-on Products and Services

As a Boat Detailing Specialist, you may want to offer... Read More

Never Burn a Bridge

Why should you always maintain a good report with a... Read More

Covenants Not To Compete: Another Franchise Quandary

Imagine that you have operated a successful franchise business for... Read More

Eight Ways To Improve Your Companys Cash-Flow ? TODAY!

Cash is the lifeblood of any business. As humans need... Read More

Preparing to Launch Your Small Business

Small business owners often enter their field with great expectations.... Read More

Small Business Survival Tips

No matter what kind of small business you have, you... Read More

The Greatest Challenges the Internet Consultant Faces!

While there are few career paths that some would call... Read More

A Small Business Consultant Can Help in Many Ways... But One Thing He Can?t Provide

A consultant must remember that the business belongs to the... Read More

Dont Let Your Small Business Fall in the FDCPA Trap

When someone owes your small business money, you certainly feel... Read More

Motorcycle Detailing Procedures Manual Sample Outline

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

Carwash Manual Sample Outline

Car wash businesses are unique to other businesses. In fact... Read More

Find Some Sample Payroll Check Stubs on the Net for Easy Reference

Starting a business? For many people, the bravery to venture... Read More

Is Your Business Profitable?

What's your job profitability? Do you know?Many business owners are... Read More

Small Business Support Equals Survival

Support is critical for your small business survival. You may... Read More

The PR Commitment to Small Business

We're birds of a feather, public relations and small business.... Read More

North County San Diego Small Business

North County San Diego has had some significant growth, and... Read More

Simple Business Tactics Are Your Key To Success

In a world full of complications sometimes we overlook the... Read More

Wichita Kansas is a Great Place to Run a Business

We love Wichita because it has great all round weather... Read More

Pressure Washing Business Case Study, Tractor Cleaning

So often small service businesses fail to exploit niches, which... Read More

Solving the Late Paying Customer Blues

Nothing can drive a business down faster than customers who... Read More

Combating Over Regulation of Small Business

Many small businesses do quite well due to the blood,... Read More