The dictionary defines 'illiquid assets' as assets that are not easily and quickly converted into money. The dollar value of these hidden assets can be substantial.
Have you given your 'Rarely Sold Assets' the attention, planning and priority they deserve? If so, congratulations - less than one percent of business owners in America have given this subject the priority it deserves.
A large portion of today's family wealth can often be found concentrated in a few illiquid assets, such as the family business, their company stock or in other assets such as real estate or other intangible assets like patent rights and licenses. Being attentive to the different sources of illiquid wealth can preserve capital and create more wealth over time.
At the opposite end of the spectrum, if those assets are left unattended, not paid attention to and/or if they are not kept up to date, the losses can be enormous - financially as well as emotionally. In this busy world of ours, unfortunately it is all too easy for us to overlook these hidden treasures because they are not cash.
One of the assets you may need to look closer at is a company or business you have built. Selling a company you have put your heart-and-soul into building is often times an emotional and challenging experience and for a variety of reasons we may choose to not plan for it.
Since the sale of a business is not something most of us do every day, we tend to think "I know I need to pay attention to this, but there is plenty of time. I definitely need to do something about this soon, just not today - I'll get to it later." Guess what. 'Later' usually comes too late.
All too often we hear of a friend or business associate that has neglected this important area of financial security, and has suffered a major loss. Have you heard the saying "there is no time like the present"? This may be a good time for you to begin thinking about the eventual sale of your business.
Since most of us have never sold a business before, we can start our review with something more common - the sale of a house. There are a lot of parallels. Real estate is considered to be an illiquid asset, although statistics show that in America, most homeowners will purchase between 3 and 8 homes.
What is interesting is that as it comes time to sell a home, most people will spend thousands of dollars and 1 to 3 months fixing up the place to show well. They will take time to get all their paperwork in order, do a thorough home inspection, obtain a summary of utility bills and taxes, landscaping, fixing the swimming pool, the roof, the windows, carpet and more.
The point is, there are many details to attend to that will result in a substantial increase in value to raise the price - and profit - of the sale. This is equally true for the sale of a business.
Just as with selling a house, there are many ways to gather the information you need to maximize your profit. There are online, telephone and live courses, books, software and companies that specialize in the valuation, marketing, legal and other details for you.
The mastermind process is an excellent tool you can use to gain additional insight, awareness and wisdom. This principle is based on an ancient premise that the combined energies of two or more like-minded persons is many, many times greater than the sum of the individual energies involved.
We suggest you call together a group of friends or business associates for a mastermind session and brainstorm the situation you are working with. Once you begin, with the assistance of your team members, you'll look at things differently.
You will gain the ability to think outside the box and look outside your normal range of business applications to gain awareness and to find solutions - solutions that will mean big benefits for you.
Awareness is the first step. Be aware that someday, you will no longer own your business. Will you want to sell it? Transfer it to family? Give it to your favorite charity?
If you will be planning to sell your business, you will get the best results if you do your homework. Most people looking to purchase have done theirs and they will have very specific requirements.
You will need to come up with a fair market value and will want to keep this updated from time to time. There will be equity in the property and other marketable securities. There will be non-marketable securities, such as price earnings ratio, dividend yields, expected growth rates, discounted cash flows, etc.
There may be debts, mortgages, land, buildings, equipment to factor in. Finished products in stock, along with work in progress, and intangible assets - such as patent rights and licenses - will all affect your balance sheet.
Do you have pension assets or obligations? How about tax assets and liabilities? Are there creditors, notes payable, long-term debts, liabilities, accruals and other claims payable? Do you have partners? Having a current buy-sell that mandates a regular valuation can save a lot of headache and heartache later on.
You may want to get a commercial valuation through an accredited firm. There are many reliable ones available. The valuation report is designed specifically to defend the different methods and data used to value your company. This report is also a critical factor in giving the buyer the tool they need to secure bank financing.
There are a lot of documents you might want to keep on hand such as audited statements, disclosure statements, confidentiality agreements, and more. Having a credible valuation as part of any agreement to purchase an ownership interest will help to dramatically reduce any chances of litigation and other problems after the transaction is completed.
Selling your business can seem like a simple process, but if it is not executed and documented properly it can cause a myriad of problems. The age of 'buyer beware' is becoming a thing of the past, so be sure to take steps early in the game to cover all your bases correctly and legally.
Who knows? You just may find substantial hidden treasures that you were not even aware you had!