Current business owners have a wide variety of tools at their disposal. A simple Google search reveals a dizzying amount of results and the realization that everybody has an opinion when it comes to running a successful business. It’s easy to find information for business owners who are looking to grow the value of their company in the hopes of cashing out and securing a comfortable retirement. But what about the aspiring business owner on the other end of the transaction – the one who is looking to exit from his or her middle-management career and spread their wings as a leader in the business world? What should these up-and-coming entrepreneurs know before they take the plunge?
1. Know Your Business and Industry
It’s likely that you have established yourself as a professional in your industry. In fact, your career could be a case study for how one can get their start on the ground floor and work their way up to the top. Over the years you have proven to be a motivated employee with a keen business sense and you continue to seek additional leadership responsibilities. When the day comes for your company’s current owner to retire, they may want to pass the torch on to somebody they trust and who knows the business inside and out, someone who is currently invested in the company culture – someone like you. If that option isn’t possible but you have gained tremendous experience and knowledge in your current role, you will have set yourself up to be a viable purchaser of someone else’s business.
2. Start The Conversation
Nobody knows what you want or how to help you if you don’t speak up. Just because you know that you would be a great successor, doesn’t mean that anybody else has entertained the idea. First, if you are married, I would suggest discussing your ambitions with your spouse. Then, meet with the company’s owner and/or leadership team to discuss the prospects of your purchase. This meeting will help you gauge the journey ahead.
3. Seek Out Representation
From assessing the business’s current cash flow to identifying market sustainability, you will want a financial advisor that is particularly knowledgeable when it comes to assessing the true value of an established company. If you want to make sure you are paying a fair price to obtain ownership of the business, you will want to work with a professional who can identify the various nuisances others would overlook. Your financial advisor can also help by doing the leg work when it comes to:
- Quantifying your investment and determining the business’s fair value.
- Reviewing the company’s past financial statements and tax returns to identify any discrepancies.
- Interpreting a wide variety of reports and documents that will be presented to you throughout the process of purchasing the company.
- Identifying additional members of your advisory team, including an attorney and a banker, to help facilitate a smooth transition.
Purchasing an established business can be challenging but, if you are up to it, it can also be one of the most rewarding ventures of your life. Be sure to work with an advisor who can help ensure that you are prepared for the financial implications of becoming a business owner and guide you through the transaction process and beyond.
Email Rea & Associates to learn why working with a financial advisor is key when it comes to breaking into business ownership and maximizing the potential of tomorrow’s business leaders.
By Ryan Dumermuth, CPA, CFP (Mentor office)