David Rumsey, owner of the Marysville accounting firm Pettis Rumsey Inc., read a quote that says every day you have a business is a day you should be working to sell it. So many entrepreneurs worry about taxes, so we do all we can to make the business have a low net income for tax purposes. A business owner needs to not just focus on the tax return but on building the value of the business so when the day comes and they want to sell the business, there is some real value that someone will be willing to purchase at a high price because of the cash flow the business is generating.
Here is how I would advise a business owner to get ready for the day they want to cash in:
1. Keep your financial data complete and up to date. Numerous times I have seen a business owner trying to sell the business without a current tax return or estimated numbers.
2. Get a business valuation by an independent expert. How do you know where you are going if you don’t know your starting point? Many times the first valuation the business has ever had is the one in order to sell it. That to me can be a costly mistake. The savvy business owner will study the comparisons and take the time to improve key financial measurements that would in turn lead to a higher valuation when the day comes that you want to or have to sell.
3. Build a business that doesn’t depend on you, the business owner, to be there every day. The book “The E-Myth” does a great job of explaining how most business owners don’t build a business but rather create a job for themselves. If you have a business that doesn’t depend on you to operate it every second, then you have the start of business that you can sell.