As you near retirement, one of your most valuable assets may not be your IRA.
For many self-employed entrepreneurs, the equity in an existing business is their nest egg.
That’s why it’s critically important to extract every last penny of equity when the day arrives and it’s time to move on to the next adventure in life.
Unlike a 401K or an IRA, calculating the value of your investment in your business is not a simple formula you can derive with a hand-held calculator in a few minutes. Many factors go into determining the right selling price.
Here are three factors that can swing the pricing pendulum:
- Location. Most businesses have a hefty investment in a lease or brick-and-mortar assets. The larger the physical footprint, the more complex the transaction. If you’re going into the transaction with an eye towards extracting every penny of equity, you can expect a longer wait for the perfect buyer. That’s a good strategy when your business is healthy and you have the energy and cash flow to keep the enterprise humming along. However, ideal circumstances are not always a given. A business broker can help you determine the right timing for putting your business up for sale.
- The overall economic climate. Financial assets change in value, depending upon the state of the economy at large as well as regional differences in locales. Seasonal factors also can impact the process of extracting equity and liquidating assets. A business broker is a valuable partner as they assist an entrepreneur in estimating existing equity.
- Lifestyle preferences. For many hardworking entrepreneurs, the ability to choose a preferred clime is a top-of-list item, particularly for those merchants who have endured too many cold winters. So be sure to consider the “shiver” factor when selling your business. You can expect to fetch a better price in a sunnier location. Conversely, if you’re selling your business in the dreary season, you may want to consider the potential loss of equity as timing impacts price.