How do you know when you can afford to sell your business?
How do you know when you can afford to sell your business?
By Alex Dodgshon

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How do you know when you can afford to sell your business?

TAGS:  Exit Planning, Exit Strategy, Financial Freedom, Freedom Point, Reasons for Selling a Business, Risk Management, Timing a Business Sale

Think back to your aspirations when you started your business.

  • Was your motivation to escape the stresses of the corporate world?
  • Did you have a burning idea to innovate and make your mark?
  • Or was your ambition to build a successful business that would fund your retirement?

Whatever your reason for building a business, there comes a point when you must consider what happens next. That last goal in the above list is more common than you might think. Business owners often set up their business to provide for their family and build a legacy. As time moves on, you might start to consider how that business could be used to fund your plans for retirement and later life.

The financial practicalities of selling a business

There are many financial considerations when deciding how and when to exit your business. Before you decide to sell your business, you need to know if it will deliver the personal funds you need for retirement, moving abroad or whatever business investment you have set your heart on next.

Going with your gut just won’t cut it if you need your business sale to fund future plans. That’s why we recommend a Freedom Score Assessment to analyse your financial readiness to enter the next phase of your life. If you’re toying with the idea of selling up, this assessment could help you answer the question of ‘Will I have enough?’.

Knowing your Freedom Point gives you choices

Freedom Score is a free, confidential online assessment that looks at your net-worth and tells you whether the net proceeds (after taxes and expenses) of selling your business would give you enough money to live comfortably for the rest of your life. Perhaps most importantly, it allows you to make an informed choice on when to sell your business.

The assessment looks at your wealth inside and outside your business. A professional estimate of company value  and the costs involved in selling it is a key element of the process.

Freedom looks different for everyone. Yours might be retirement, a jet set lifestyle or a quiet life in the countryside with leisure and family time. Whatever you envisage your later life to look like, calculating how much money you need to fund that lifestyle is the first step to achieving it.

Why is it important to know your financial Freedom Point?

Knowing your financial Freedom Point allows you to make financial plans and make a conscious decision to exit your business. You’ll be exiting the business on your terms.

Some owners will be surprised to find they’ve already passed their Freedom Point and could actually have retired long ago. Others may need to make improvements in order for the sale to fund the things you want  in the next stage of your life. Armed with your figures, you can calculate and plan exactly where to make those improvements to add the most value. Doesn’t that sound much easier than a finger in the wind?!

If you’re curious and would like to take the free and confidential online assessment,  complete the questionnaire and we’ll share your Freedom Score Report with you.

What if you decide to keep the business beyond your Freedom Point?

When you pass the financial Freedom Point you’re entering risky territory, taking more risks with your financial future than you need to. You can realistically afford to sell up and move on with the rest of your life without financial constraint.

So what are the risks of not selling up when you reach your financial Freedom Point?

  1. The value of your business may decline. Look at the effects of the war in Ukraine, economic crisis and the pandemic to understand how uncertainty can impact revenue.
  2. Your personal circumstances may change. Scenarios such as divorce can prove costly, especially in family businesses.
  3. Personnel changes can impact operations. What would happen if a key director or partner decides to move on? What effect will that have on business?
  4. Deteriorating health and wellbeing. It’s a melancholy subject, but none of us stay around forever. When an owner isn’t able to work or dies suddenly, it can have a significant impact on business sales value.

It’s also important to remember that once you hit your Freedom Point, you can sell your ownership of your business, but that doesn’t necessarily mean you have to stop working. If working keeps you young and healthy, your sale terms might include an ongoing role for you.

Could you be sitting on a goldmine?

It’s entirely possible. You’ll never know until you take the leap and explore your own reality. Once you’ve completed your assessment, our consultants will be happy to advise on the steps you need to take to increase business value. We’ll work with you to develop an exit strategy to deliver the sales value you want, rather than the value dictated by the market. Book a discovery call  to find out how we can help.


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