COVID-19 has impacted the way businesses operate in a tremendous way and, as a result, many are deciding it is time to downsize.
Are you a business owner that needs to sell your business or transition into a smaller space with your employees?
Planning for a business transition is not always easy, but with these tips below, you’ll find that you won’t have any problem making it seamless.
Keep reading to learn what you need to know about business downsizing before you transition your business.
1. Find the Actual Value of the Business
Before you can do anything else, you’ll need to figure out the value of your business with a valuation. You can do this informally with a business broker.
They should be able to give you a range of probable sale terms early on so that you can have an idea of the value and take the time to plan. You can also use this as a base to see what issues you can address to increase the estimation.
Once you’re ready for a formal valuation, you’ll want to work with an experienced and qualified business appraiser. This will help you determine what will be an appropriate offer.
2. Decide How You Want to Structure the Transition
In a full sale, you will basically sell the entire business and come out of it entirely with some extra money.
A partial sale is different in that you will sell most of the business, but you will still have a role in it. You could be the landlord of the property, be a board member, or keep a certain percentage of ownership.
You do have the option to give the business as a gift, which will mean you don’t get any additional money from leaving and you will still owe taxes. However, you may still be able to have an involvement in the company if you work this out in the deal, such as drawing a certain set income every year.
3. Arrange Your Personal Finances
Once you have completed your valuation, you can figure out what the minimum amount that you’d need to be comfortable looks like.
Consider your living expenses first and any other spending that you would expect to have. Think about your future financial goals or what type of financial situation you want to leave your family with.
Don’t forget that debt payments and tax requirements will lower the amount of the gross sale. Talk with an account about these factors to make sure that you’re not blindsided later.
4. Plan a Specific Date
You have to have a date in mind ahead of time for the transition of the business to take effect.
This is also helpful for moving your things out of the business if they were not accepted in the sale. Taking them to a place like this climate controlled storage unit will make this easier.
At all points in the process, it should be clear where the ownership lies. This is going to help you with your tax filing later. Otherwise, you will have issues with the IRS and insurance policies.
You Can Have a Successful Business Transition
Following a business transition, you can look back on what you accomplished with a sense of pride and know that you made the right choice.
Doing things correctly will make you feel better about the change and give you peace about the process, especially if you loved your business.
If you’d like to learn more about getting into a new business or want some economy-related tips, check out those sections on our website now!