By Chris J. Roe, CPA, PFS
Are you considering selling your business or medical practice? If so, you’ll need to take specific steps to prepare and maximize its value. Proper planning can make a huge difference in the selling process and help you keep more money in your pocket post-tax.
- Consider your exit strategy: Plan in advance what you want when you exit your business. Are you open to retaining an ownership stake or staying on as management? Think about how your ongoing compensation will be structured.
- Set realistic expectations: Many business owners just make up a value they want for their business. While this value does not just appear from thin air, it is usually the amount needed to retire and maintain their same lifestyle. This number is rarely accurate. Get a third-party opinion on your business’s worth. This information will help you decide if selling now is the right move.
- Increase trailing 12-month earnings: Buyers often focus on this metric and will also look to your last three years to evaluate the consistency of earnings. Evaluate your operating income and expenses, and find ways to boost revenue while cutting unnecessary costs.
- Get your financials reviewed: Most buyers will request at least two, if not three, years of reviewed financials. This takes time and money, so plan ahead. The buyer will also usually do their own quality of earnings report, so you should consider obtaining one as well to prevent any unwelcome surprises.
- Address potential pitfalls: Proactively identify any issues in your business and either find a solution or be prepared to explain why they’re inherent to your operations. This foresight will help you during negotiations with potential buyers. If you hide issues from the buyer, they will discover them sooner or later, which may bring about lawsuits down the road.
- Organize a due diligence data room: Collect and store your business data as if you were the buyer. This exercise provides insights into your business and demonstrates professionalism and organization, instilling confidence in potential buyers. You may also learn a few things about your business that you did not know.
- Assemble an advisory team: Don’t try to negotiate the business sale alone. Build a team of experts, including an investment banker, attorney, CPA, and financial advisor, to help you navigate the complex selling process. Rx Wealth works with business owners to help them build a competent team to manage their specific situation.
- Stay focused on daily tasks: Sellers commonly get wrapped up emotionally in the sales process. Instead, keep your attention on running your business. Delegate negotiation responsibilities to your team while you ensure that your earnings and financial projections remain on track.
- Maintain perspective and stay grounded: The selling process can be an emotional rollercoaster with highs and lows. Trust your team to help you through it, and avoid getting greedy or making excessive demands, as this can drive buyers away. Sellers have been known to continually request additional perks as part of the deal, such as ongoing health insurance coverage, payment of their cell phone and automobile expenses, and other similar benefits. Keep your eye on the prize, and don’t sweat the small stuff.
- Be aware of required third-party approvals: Familiarize yourself with any necessary approvals from vendors, property owners, minority shareholders, or governmental entities, as these factors can potentially delay the deal.
- Implement strategic estate and income tax planning: Ideally, tax planning should begin two to three years before a deal. Work with your team, well in advance, to position your business for sale from a tax perspective and maximize your after-tax profits.
Selling your business or medical practice is a significant milestone allowing you to realize the wealth you’ve built over time. By staying focused and relying on your team of advisors, you’ll be well-positioned for a successful sale.
If you’re unsure how to build a team of advisors, maintain your lifestyle post-sale, or navigate the many decisions involved in selling your business, we’re here to help. With our extensive experience, we can support you by leading your team and guiding you through the process. Don’t hesitate to reach out and schedule a free initial consultation if you’re interested.
Rx Wealth Advisors is a physician-focused financial advisory firm. Their primary focus is to help medical doctors maximize their earnings, keep more money in their pocket, and cultivate wealth so they can live the life they’ve earned and deserve. Rx Wealth can be reached at 412-227-9007, via email at firstname.lastname@example.org, or on the web at rxwealthadvisors.com.