Where Will You Be in Five Years?
By DON ARCHER
Every day in the United States, millions of small business owners ask themselves where they're going. With the tides of taxation and regulation increasingly against them, many are thinking about selling. Well, if you're in the towing industry your business may be more desirable than you think. Dave Roos of the website How Stuff Works, lists the automobile repossession and removal business (towing) as one of the "Top 10 Recession Proof Businesses."
As we near the end of this eight-year devolution of our economy, I believe we're going to be heading into a renaissance of sorts. As more and more disenfranchised workers leave corporate America's financial and technology sectors, many will be fortified with severance packages and golden parachutes. Having had their fill of the volatility of real estate and the stock market, many will be looking for something more stable.
They may be looking to buy your business. But are you ready?
Even if you're not ready to sell right now, at a minimum you should know what your business is worth and what needs to be put in place to facilitate a future sale.
Four things you should consider before putting your business up for sale include:
• Your business should be able to operate without your direct involvement.
Building your business to where it is now has taken you years. Entrusting your livelihood to managers may not be something you can stomach. But if you ever want to sell, you need to have a competent management team in place. Unless you plan to stay on for an indefinite period after the sale, having systems managed by others will help to attract willing buyers.
If your plan is to sell to a family member, you need take that person under your wing now. They'll need all the mentoring they can get if they're going to fill your shoes.
• Know what your business is worth to a potential buyer.
Many of us have an unrealistic idea of the value of our business. Some tend to think in terms of blood, sweat and hours invested and what we believe our time and toil was worth. Others hold tight to exaggerated truck and equipment values insisting that they're worth more than what the market would bear.
The only way to value your business is to think in terms of the buyer's interests. Can your buyer make a reasonable return on his investment after he's purchased your business? If the answer is no, then you need to adjust your price or wait.
• Understand that relationships may not transfer as smoothly as you'd like, and this may affect the price.
You don't do business with companies, you do business with people. When there's a change in ownership, sometimes those relationships don't transfer as smoothly as you'd like.
Savvy buyers know this. They'll expect you to either facilitate a smooth transfer by introducing them to your customers, or they may request that you stay on for a period. They just might ask to be compensated with a reduced price. Understanding this potential complication can allow you to take the lead in arranging proper introductions to key customers ... after the papers are signed.
• What will you do after the sale?
Is a trip to Cabo in order? Will you pay off your lake home and retire in style? Hold up there! Even though you've paid personal property taxes, real estate taxes and income taxes all those years, the feds and the state still want more.
When you sell, they're going to come after you to recapture the depreciation you've taken, and the capital gains you've made. In some cases, they'll take as much as 40 percent, unless you use what's called a 1031 exchange. Doing so requires you to purchase "like-kind" property. It doesn't mean you have to go back into the towing business; it means you should consult your tax advisor.
In short, do your homework before you sign. Nothing's worse than pouring your hard-earned dollars down a money pit.Don Archer lives and works in Jefferson City, Mo., where he and his wife, Brenda, own and operate Broadway Wrecker, a 12-truck operation that's been in business since the 1950s. Email him at firstname.lastname@example.org.