Formulating a Succession Plan

By Jay Goltz on the New York Times Blogs: Last week, I wrote about holding a succession-planning meeting with my family.

While I am not planning to retire any time soon, I recognize that bad things do happen — unexpected bad things like sickness, disability, and of course the ultimate bad thing, death.

These things are never fun for anyone, but when you own a business there can be a lot of issues to deal with. Who takes over the business? Should it be sold? Can it be sold? Are there any provisions for employees? Does anyone know your wishes? Do your wishes matter? Who has all of the passwords, combinations, security codes, bank account numbers, insurance policies, etc.?

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Business Sales Surge Possible with Capital Gains Tax Rise on Horizon

With Barack Obama set to reverse the Bush tax cuts that critics labelled a handout to the undeserving rich, anyone thinking of selling their business might be considering accelerating the sales process.

From the end of this year capital gains tax is set to jump from 15% to 20%, meaning entrepreneurs selling their business after this point will pay more on any capital gains made on their asset.

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Entrepreneurs Having to Delay Selling Up and Retiring

Entrepreneurs are increasingly delaying retirement by several years, the Globe and Mail has reported.

Whereas before the financial crisis businesses typically fetched more than five times cash flow, now that has fallen to around three or four times cash flow. The erosion of equity values has meant many business owner can't afford to sell up and retire as soon as they planned - so many are now running their business into their late 60s or even early 70s.

Although this is a Canada-focused piece the phenomenon undoubtedly applies to the US too.

Selling a Business In Today's Marketplace

From PR Web: In this uncertain market where many business owners are having trouble selling their businesses, Sunbelt Business Brokers, with locations in Daphne, AL and Pensacola, FL, discusses solutions to help increase value and attract buyers.

In business, as in most things, first impressions are everything. Sunbelt Business Brokers advises business owners what tools they need to make the best possible first impression to potential buyers.

One of the first actions that Sunbelt Business Brokers advises every business owner to focus on is ensuring that the company's financial records are accurate and easy for potential buyers to examine.

Clean, well-documented records will be much easier for buyers to analyze, and can go a long way to making a business seem more appealing.

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Seller Financing on the Rise

Confirming my suspicions, The Wall Street Journal reported a rise in the use of seller financing with credit availability still some way short of pre-credit crunch levels.

Seller finance, also called owner or vendor financing, is effectively a loan from the seller to the buyer, who pays off the principal in instalments, with interest, much the same as if he was paying off a bank loan.

However, there are several advantages to deferring payment  over a bank loan (to offset the obvious drawback that you must wait for your money):

• Greater pool of potential buyers - ie, also those who cannot raise finance elsewhere
• Increases the price you can achieve - so long as the buyer does not ultimately default on the loan, which makes it imperative that you trust the buyer's competence to run the business properly
• Gives you, the seller, a stake in the new owner's fortunes, which will help the transition process
• Signals the seller's confidence in the business to the buyer

Forbes also outlined the merits of seller financing recently, as well as explaining how to reduce your risk.