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Hey everybody, this is Gene Marks. Welcome to this week’s episode of the Hartford Small Biz Ahead Podcast. Thank you so much for joining me. On this podcast, I take different, issues and things where I can give some advice and kind of help and there’s a big thing that I think impacts a lot of business owners, probably you as well. That has to do with succession planning and exiting your business. The Small Business Administration in a recent research study reported that more than half of business owners in the United States are over the age of 50 years old. And not only that, but like the average age of the U.S. small business owner is 55 years old. So, we old. More importantly though, we’re getting older and a lot of, like myself, a lot of my clients were, were kind of thinking of that whole succession planning deal.
Like what do we do with our businesses going forward? And if you’re in that range you should be thinking about that too. Honestly guys, I actually don’t care what age you are right now. You can be 25 and running a business. You really should have the same mindset, and the mindset is valuing your business. How do you create the most value in your business so that if somebody were to come in out of the blue and offer you money for it, you know that you’re running your business in such a fashion that you would be able to maximize the money you would get by selling your business. How do you maximize that? Well, I have a few things that I’d like to share with you. Just some advice about selling your business, like things you should be doing now because you expect to be selling your business five years from now, or 25 years from now.
Okay? But shorter term, these are things that you should be considering. So, for example, you should absolutely have a buy-sell agreement in your business. A buy-sell agreement is basically like a roadmap for what happens when you or your partners, and I’m assuming you’ve got a partner or fellow shareholder needs to leave the business. It’s a buy-sell agreement. It’s just a roadmap map. It’s like, okay, somebody died, somebody’s change of life happened, somebody got put in jail or we got an offer from somebody to buy out, both of us or one of us where, what do we do? Okay, we’re gonna pull out the buy-sell agreement, and this is gonna have the list of things that the, again, the roadmap for what we’re gonna do. The requirements for valuing our business, how we’re gonna handle taxes.
How we’re gonna break up responsibilities. What the trigger is for something like this, like a buy-sell agreement. What about non-competes? What about can we be consultants afterwards? All of that is considered in your buy-sell agreement. For goodness sake, regardless of when you started your business, regardless of how old your business is, you need to make sure you’ve got a buy-sell agreement in place, especially if you have an other investor or a partner in your business. Talk to your attorney now and get that done. So that’s number one. Another thing that I like to recommend to clients, it’s about getting business valuations, getting evaluation done sooner rather than later is really, really helpful. Now, there are plenty of independent firms and independent people that do business appraisals. You can talk to somebody that’s an accredited senior appraiser or a certified business appraiser.
You can google, appraiser firms in your area. Now, a lot of these appraisers come out when it’s time… when a transaction is getting done. Like, we’re gonna sell our business before we agree on a purchase price. We need to bring in that independent appraiser to look at our business. Well, you don’t have to wait for that. I mean, if you’re thinking of selling your business five years from now, or even if you would, just like an outside reality check to spend five or 10 grand on an appraiser to come on in, go through your business, look at your books, come out with market values, come up with, resale values, looking at your infrastructure, comparing it to others in your industry, looking at the metrics, and then coming back to you and saying, “Hey, your business is worth x.”
That might be right what you’re expecting, or it might be a surprise. And if it is a surprise, and let me tell you, for a lot of my clients, it does turn out to be a surprise. Not a good surprise either. You at least have got some time to get your act together. So you can do things about it like, “oh my God, I didn’t know my inventory was appraised at such a low value. Why is that?” And it’s really old, and maybe we should be getting rid of it or organize it better or bring it into better shape. Or maybe my property and equipment is out of date. There’s a bunch of things that an appraisal will tell you to do that I really do think that you should consider. The last thing that, and by the way, there’s a bunch of things you should be doing, but I told you about having a buy-sell agreement.
I told you about getting an appraisal. What I’m seeing also for people that want to sell their businesses this year, looking ahead five years, is there is a big look at technology. You need to look at your technology. You need to do a full technology evaluation. To do that, you should probably bring in an outside IT firm to look at what you got, how secure your database is. Do you have cloud-based systems? How good is your network? How old is your hardware? How updated is your software? How proficient are your people with the technology? What type of internal infrastructure and support do you have for your technology? What type of external infrastructure and support do you have for your technology? Are you doing backups? Is your data fully protected? Even if there is a backup, have you consider what happens with malware or ransomware?
What about your work from home employees? Do you have good security set up for them that’s protecting your data? All of these questions will be asked by a prospective buyer, because when somebody’s coming in to buy your business, sure they’re interested in your property, they’re interested in your customers, they’re interested in your inventory. But trust me, 2023 man, they are interested in your technology as well. It is a big data world, and people are coming in to buy your data. So you want to make sure that your technology infrastructure is up to speed. I just spoke to a client literally just this morning that we’re about to hire a VP of sales for their business, and the person turned them down because their CRM system, their customer relations management system was so old and out of date, the VP of sales said, I can’t come and work for a company with this type of technology.
I can’t do my job. And that was just a, a guy that was applying for a VP of sales job. Imagine somebody coming in and evaluating your business to buy or invest in your business, and then there’s a bunch of old technology. You were gonna shoot yourself in the foot if you do not have up-to-date technology that you’re using to run your business. So bring in a good technology expert to do that, okay? Get an independent appraisal done to your business and, and revisit that buy-sell agreement in your company. Do these three things like now. Do them now. If you’re over the age of 50, if you’re an average age of 55 and you’re starting to think about succession planning… good. This will lay out the groundwork for you for selling your business maybe 2, 5, 10 years from now.
You want those answers now, so you know what to focus on. But even if you’re not, even if you’re a younger business owner, you’re a millennial, you’re 30 years old, you’re 35 years old, you’re running a company, you need to have somebody from the outside come in. First of all, you need to have a buy-sell agreement, that’s for sure. You wanna have an independent appraiser tell you what they think your business is worth, and you do wanna have a technology firm really point out to you all the potential flaws or exposures in your infrastructure so that you can address them now. You might not be selling your business for 20 years, but shouldn’t you be running it at the maximum value? These are the kinds of steps that people take to make sure they are running the highest valued businesses they possibly can. Well, that’s it. You’ve been listening to the Small Biz Ahead Podcast this week. My name is Gene Marks. So happy that you joined me. If you need any other advice or tips or help in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. Again, my name is Gene Marks. I’ll be back to you next week with some other thoughts and tips to help you run your company. Hope you enjoyed this week’s. We’ll talk to you soon. Take care.
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