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Grover Rutter CPA, ABV, CVA, BVAL, CBI

Grover "Grove" is a CPA who specializes in the valuation and sale of businesses with revenues ranging from $1 million to $50 Million. Grove is one of the few CPAs in the country who is also Accredited in Business Valuation, a Certified Valuation Analyst, a Business Valuator Accredited in Litiga...

Category of Expertise:

Business & Finance


Grover Rutter Mergers, Acquisitions & Valuations

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02/21/2011 10:05pm
Baby Boom Entrepreneurs: Need Help to Cash Out

Baby boom entrepreneurs are beginning to think about retirement. Many worry about being able to sell their businesses for enough to make a significant contribution to their retirement lifestyles. And, many are shocked to learn that their befuddled business practices have bewitched the value of their businesses! This article offers sage advice, telling business owners how NOT to cast a curse upon themselves.

A vast number of baby boomer business owners will be retiring within the next 18 years. Unfortunately, most will NOT be properly prepared to sell their business for the best and highest price. In fact, some will not be able to sell their business at all. This impending tragedy can be averted if the owners know what to do--and how to do it.

Business owners wishing to sell a business should learn what buyers look for when they seek to acquire a business. There are several facets which make a business desirable in the eyes of a buyer. I’ll briefly discuss a few or those facets here.

The purchasers of smaller to mid size businesses often expect:

A Good Job. A Seller’s business should offer a Buyer the opportunity to earn more than what the Buyer is currently earning. If this opportunity doesn’t exist, then the incentive for the Buyer to purchase a particular business is greatly reduced.

Opportunity. Perhaps one of the more attractive aspects of any business…is the untapped opportunity that can be tapped by a new owner. However, Sellers should be prepared to explain to a potential Buyer how the opportunities can be cultivated and “why” the Sellers haven’t already done so.

Security. In the recent economic environment upper managers, middle managers and other management personnel are losing their jobs. Maybe they’ve spent years with a particular company…only to find themselves on the street. Many of them believe they are too old to become employees at another company where the same thing can happen. These people often try to hedge their bets by purchasing businesses where they can be in control, and thereby more secure.

Respect as a business owner. Respect is that intangible which is often priceless. Business Sellers often are not aware of the respect they receive within a community, because they are used to it. But to someone who has never had that respect, it can be something to be coveted.

Cash flow and return on investment. A business buyer needs to do more than just earn a living. If that weren’t true, then they buyer might just continue on being an employee---or unemployed somewhere. When lenders look at the feasibility of lending money for a business acquisition, they consider the adequacy of personal income for the Buyer, adequacy of cash flow to service the acquisition debt, adequacy of cash flow to grow the business, and adequacy of cash flow to return a reasonable return on the buyer’s investment in the business.

A retirement plan. Some of the best retirement plans are not 401K or SIMPLE retirement accounts. The best retirement asset is often the business that a buyer might purchase. The goal is for the Buyer to earn a living, pay off acquisition debt, grow the business to be more valuable and ultimately, to sell the business and enjoy the fruits of having grown the business.

The sad reality is that many business owners let the tax tail wag the business dog. Instead of looking at their own businesses like a buyer will someday…these business owners get sucked into whacky accounting and bookkeeping practices, all in the name of saving income tax dollars.
Business owners must learn to look for value in their own businesses. By cleaning up any “boondoggles” (poor bookkeeping/accounting practices, inadequate technologies, business appearances, etc.) business owners can begin to build real value in their own businesses.

Contact grutter@gruttercpas.com with your questions, or visit www.gruttercpas.com


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