Owning a small business is much like having a child. You nurse and nurture it from its inception and keep actively involved to ensure that it grows and becomes sustainable.
However, that doesn’t mean you’re going to own the business forever. A time will come when you want to move on and try other business ventures. Alternatively, you will contemplate retirement. Now comes the question of what you’re going to do with your business. You can’t be tied to it for the rest of your natural life.
So, what are your options?
Liquidation requires you to literally and figuratively close the doors of your business forever. It involves the sale of all the company’s assets. After the debts are paid, the balance is the owner’s profit.
Liquidation is a drastic move, although it is often the only option. This is especially true of small businesses that rely heavily on the reputation of the owner. After all, Honest Bob’s Second-hand Auto won’t be quite the same if Bob isn’t there anymore!
The advantage of liquidation is that it’s simple. The process also runs quickly, provided the business assets can be sold right away. The best approach is getting professional help from a broker like Peterson Acquisitions that can help you value your assets and supervise their sales. These companies have extensive contacts to help the process run smoothly.
- Longer-term liquidation
Unlike a straightforward liquidation that is immediate, liquidation over time can be more profitable. The business owner spends a few years taking the profits out of the business and not reinvesting them. This process comes in the form of a salary, bonus, or dividend payout. It can be a combination of the three.
When you follow a purpose-driven long-term liquidation strategy, you’re likely to walk away with more money, according to most business brokers. It allows the owner to achieve a higher rate of return on investment.
However, your income tax bill may be higher than if you leave the money in the business until you liquidate it. Additionally, there won’t be much room to grow the business at this time as there is little money being reinvested in it.
- Groom a successor
It might be a family member or long-term employee that you decide you’d like to take over the business after you’ve left. This approach allows the company to continue, which is satisfying as it’s part of your legacy.
You must start grooming your successor well in advance of leaving the business. This will allow for a smooth transition after your departure. If you don’t share everything with your successor, they’ll struggle to fill your shoes.
You might still need to be involved with the business from time to time in an advisory capacity. You can also continue to draw dividends as the business owner. But bear in mind that succession, especially with family members, can be a thorny issue and the cause of conflict.
- Sell to another business
A company with a good reputation is a desirable acquisition. If you make it known that you wish to sell the business, you’ll receive a flurry of phone calls from interested buyers. It could be a competitor that wants to buy your business or someone looking to enter the market.
You will get more money from selling your business than you would from liquidating it. Be prepared to do some haggling but resolve to sell to the highest bidder.
Being bought out by a competitor can mean job losses for employees. Many competitors will buy a business to access their client list. Once they have that, they shut it down.