by Scott Bushkie, CBI, M&AMI
First, a quick look ahead. The M&A market is strong in this first quarter of 2019 and is predicted to last for the next 13-18 months. Deal volume is predicted to increase 51% increased in both the Main Street and lower middle markets according to current stats from the Q4 Market Pulse Survey.
Whether you’re planning to sell or not, I’m recommending the following to-do list for business owners. Add this to the checklists you’re making for the year ahead:
Meet with your financial planner. Go through the exercise of figuring out what you’d need to net out of the sale of your business to live your ideal lifestyle.
If you’re thinking about selling in the near future, this will tell you if you can take advantage of this peak market or not. But if you’re not planning to sell for a while, you’ll be better prepared to set future goals.
Review your tax scenario. Talk to your accountant and get an understanding of what your tax treatment would be when you sell. The tax situation could be significantly different for an LLC and S-Corp vs. C-Corps, so it’s important you understand what you’ll be taking home at the end of the day. If you own a C-Corp you could have approximately double the tax liability than an LLC or S-Corp in certain scenarios.
Dust off your buy-sell agreement. If you have partners or investors, make sure your buy-sell agreement is up to date.
I’m serving as an expert witness in a partnership dispute. One of the partners died, and his widow has been fighting for two years to get what she thinks is rightfully hers. All that cost and conflict would have been avoided with a well-written and up-to-date buy-sell agreement.
Find out what your business is worth. Get a professional estimate of value so you can make informed decisions about estate plans, insurance, and your buy-sell agreement. Do you have sufficient life insurance to reflect the current value of the business? Is it set up to allow the remaining partner(s) to buy out the deceased’s heirs without negatively impacting the business (i.e. putting jobs at risk or risking your own legacy and chance of future success)?
Review your exit strategy. Once you understand the value of your business in today’s market, your tax liability and what you need to “net” out of your business, you will more accurately be able to determine if a business sale now would allow you to live your ideal lifestyle for the rest of your life. If not, you will know just how big the gap is and be able to focus on a new goal.
Work on the big picture before you get caught up in the day-to-day. You got into business to create wealth and set yourself up for the future, so take some time to figure out if you’re on track.
Scott Bushkie is the Managing Partner/Founder of Cornerstone Business Services, a Lower Middle Market Boutique Investment Banking Firm serving the Midwest. Reach him at 920-436-9890 or sbushkie@cornerstone-business.com
