Post-Sale Business Planning

05/15/2023

By: Garrett K. Norton, Investment Advisor

Post-sale Business planning refers to the process of creating a strategy to manage and maximize income after the sale of a business, property, or asset.

The first step when selling a business asset is to quantify its intrinsic worth.

There are several methods used to value private businesses, including:

1. Comparable company analysis (CCA):

This method involves comparing the company being valued to similar companies in the same industry that are publicly

traded. The valuation is based on multiples such as price-to-earnings, price-to-sales, or price-to-book ratios.

2. Discounted cash flow (DCF) analysis:

This method involves forecasting the future cash flows of the company and discounting them back to their present value using a discount rate that reflects the risk associated with the investment. The value of the company is the sum of the present value of its future cash flows.

3. Asset-based valuation:

This method involves calculating the value of a company’s assets, such as property, plant, and equipment, and subtracting its

liabilities to arrive at the company’s net asset value.

4. Earnings multiple method:

This method involves applying a multiple to the company’s earnings, such as earnings before interest, taxes, depreciation, and

amortization (EBITDA), to arrive at a valuation. The multiple is typically based on the industry and comparable companies.

5. Rule of thumb valuation:

This method involves using a general rule of thumb to arrive at a valuation based on a multiple of the company’s revenue or earnings.

For example, a business may be valued at two times its annual revenue or six times its annual earnings. It’s important to note that no single method is perfect, and the valuation of a private business often involves using a combination of methods to arrive at a fair market value. Additionally, the expertise of a professional business valuator may be necessary to ensure an accurate and comprehensive valuation.

After you come to an agreement and Sell.. Then what?

After selling your business, your major pain point will likely be how you might manage to generate a similar level of income that you did when you were operating your business. Here are some key steps to consider when planning for post-sale income generation:

1. Identify your post-sale income sources:

Start by identifying the sources of income that will be available to you after the sale. These may include investments, retirement accounts, rental income, or any other sources of passive income.

2. Set financial goals:

Determine your financial goals, including your desired income level, spending needs, and any long-term financial objectives. This will help you create a plan that aligns with your goals and objectives.

3. Manage tax implications:

Work with a financial planner in tandem with an accountant to understand the tax implications of the sale and to develop strategies to minimize taxes on post-sale income.

4. Develop a diversified investment plan:

Consider developing a diversified investment plan that balances risk and return across different asset classes, such as stocks, bonds, and real estate.

5. Consider estate planning:

If you have significant assets, consider estate planning to ensure that your assets are distributed according to your wishes and that your heirs are protected.

6. Seek professional advice:

Finally, consider seeking professional advice from a financial planner and an accountant, or attorney to ensure that you have a comprehensive plan in place to manage your post-sale income effectively.

Are you planning to sell your business?