TRICKY TIMING WHEN SELLING BUSINESS OR PRACTICE

You've begun to anticipate retirement, and you have all your ducks in a row as far as investments are concerned. But what about selling your business or professional practice? How much will it be worth come retirement? When is the best time to sell? It can be a slippery slope. Here is a very sad story. A good friend had a booming professional practice. He was making good money, had a fine reputation, and worked his buns off. He was getting tired. Retirement started looking more and more intriguing. He looked far and wide for the right person to take over (buy) his practice---someone who would look after the clientele properly, and would run the office efficiently enough to make payments on the debt he incurred in buying the practice. He found someone, made a deal and went fishing. Loved it. Uh-Oh Alas, everything went wrong. No need to dwell on details. In brief, after almost two years the buyer couldn't hack it, and the seller had to come out of retirement and go back to work again. He needed the income from the sale of the practice to meet his needs. Either that or cut back his life style drastically. This is not an uncommon problem. Psychology plays a major role---as retirement time nears, the more anxious the would-be retiree gets. And the more anxious he gets, the less attention he pays to detail in running the business. He's thinking "fishing," not "income and expenses." It's arguable that the value (and now we're talking cash-on-the-table value) of a business or practice diminishes as retirement day nears, all other things being equal. As one's attention drifts from profit statements to fishing trips, the business begins to suffer. There is no easy formula to determine the exact best time to sell a business. There isn't even a hard formula. Each case has to be evaluated on its own merits. The longer you wait to seek a buyer, the more anxious, and vulnerable, you will become. On the other hand, if you project selling a few years down the road, and you take on a potential buyer as a partner, you can train him or her to keep the shop running smoothly. That's the good news. If, after some time has gone by, you find that your new partner/buyer is bad news, you're in a real quandary. So Many Questions, But You Must Tackle Them Then there is the equally difficult question of how much value do you personally bring to the enterprise? Do your clients/patients come to you because they are so appreciative of you? If someone takes over from you---financial questions aside---will your clientele stay with the new person, or will they flee, saying, "She's not as good as the previous one, so I'm splitting." Every prospective buyer of your business or practice has a totally different set of credentials that must be examined. Money. Personality. Reputation. Experience. Connections. Age. Family stability or lack thereof. Debt. Good and/or bad habits. Health. And more. Then add in the inevitable financial and legal aspects of a sale. Down payment? Ongoing payments? Interest rate on money owed? Right of seller to examine financial records of buyer? What happens if the buyer defaults (financially or in maintaining the proper operating condition of the enterprise)? And then there's the worst case scenario. You might not want to think about it, but I have to, for your sake. It's my job. What if you had to come out of retirement to take over the enterprise? What if you found that it had been left in poor condition, financially and/or physically? How would your life be affected financially and emotionally? Here Comes the Cavalry----Your F.A.I.L.- Safe Team All of these issues must be examined by you, your family and your F.A.I.L.-Safe team. F for Financial---your banker to advise you on the credit conditions and needs of a would-be buyer. A for Accounting---your accountant to evaluate the tax implications of a sale, in whatever form, and to help you analyze the ongoing condition of the business once you've gone fishing. I for Insurance---your insurance agent to help you make sure that your buyer is properly insured to protect you against insurable losses once he/she owns the enterprise. That includes hazard insurance (fire, etc.); public liability coverage; key man life insurance if your buyer dies before he has paid you off; disability income insurance if your buyer is disabled and can't work; health insurance to keep him afloat if heavy medical costs threaten what's owed you. (Your F.A.I.L.-Safe Team can also be valuable in estate planning, so use them to the fullest.) This brief essay is only the tip of the iceberg. We'll examine specifics more closely in other posts, as time goes by. If nothing else, what you hopefully will have learned today is to get busy NOW arranging your F.A.I.L.-Safe team. The sooner they get on the case, the better off you'll be when the Big R Day comes. This article supplements Chapter 21, pages 637-639 in Personal Finance. Access the textbook by clicking on the box in the right column.