STEPS TO STOP: 
RETIRING OR SELLING YOUR BUSINESS

If you figured out that you could retire without needing to find a buyer for your business, your process will be relatively simple and logical. You would stop taking orders, fill all the orders you have, collect your accounts receivable and retrieve any works you have out on consignment. Disposing of your tools and equipment and left-over materials may lead to an effort to sell the business. However, a good alternative may be to consider donating some or all of it to a charitable organization. An art school or your local public school department may make a likely recipient. You are eligible for a charitable contributions tax deduction for the current resale value of any equipment or materials you may choose to donate. Information about the deduction is reported on Form 8283 if the value is over $500 and the deduction is claimed on Schedule A.

There can be a hitch to donating your equipment, however. If you wrote off the cost of that equipment using the Section 179 Limited Expensing Election and you haven't used the equipment for its full life, 5 or 7 years, you will have to "recapture" the depreciation. This means you have to "undo" the write-off by calculating what you would have been allowed for depreciation over the years you did use the equipment and reporting the difference as additional business income in the year you make the donation. The recapture amount is figured on Form 4797 (page 2) and the recapture income is reported on your Schedule C. Ouch! If your equipment is still young, you'll be better off selling it because the recapture will offset the benefit of your charitable deduction. Back to the drawing boards.

The other area that can be confusing to deal with on closing your business is your inventory of finished works. In order to take the deduction for "Cost of Goods Sold" for the materials cost of anything still in your inventory, the goods have to be either sold or junked. In some instances, you may have left only low-value, out-dated pieces that could be thrown out with an ease of mind. If not, you may need to find a "bargain sale" opportunity. The end result in either case must be that you no longer own them. Again, you might think of the charitable contribution route, but the tax law is not on your side here. For goods that you have produced yourself, the value of your charitable deduction cannot exceed the inventoriable cost of the materials. (See February 1995 issue) That would be pretty unsatisfying and you'd still have to reduce your inventory by those costs. If you just keep the works personally... for the ultimate in lifetime gift-giving... you also have to subtract the costs from your inventory and give up the deduction altogether.

On a lighter note, maybe you can find a buyer for your whole business! If you go this route, it will be good to consider all the different aspects of your business that are saleable. You can develop a selling price for the business from looking at the value of all the pieces. The more obvious assets you probably have are the finished works and works in process, your materials inventory, studio equipment and tools, office equipment and furnishings. If you are leasing space for your studio, your lease and the "all set up" studio may have a separate value in an ongoing business. If the studio is in a separate building you own, there is that real estate to sell and it could go to a different buyer. If it's in your home, you will have to decide whether to sell your home to the buyer or another person who could make good use of the space, or convert the studio to "personal use" and keep it.

There are some other aspects of your business you might be able to value as well. If you have regular customers for your work, the customer list and the right to sell your style of works to them is of great value to anyone continuing your business. This might include the contact names, a history of their prior purchases, or even the market information you may have collected on the demographics of your market. Specific procedures and formulas, production techniques and styles to be passed on to the buyer are also a valuable part of the business you are selling. They may be less tangible, but are really the crux of the business! Even the business procedures, forms, checklists and systems you have developed in your business have value.

Keep in mind, you may be selling your entire business to one person or there may be several people who will consider different parts of your business valuable to them. Some things may be donated, others kept and others sold. The key for you is to keep an open mind to the options and possibilities in order to maximize the return on your years of work building up such a strong operation. Once the disposition is all complete, you will have a great satisfaction to bring into your first years of retirement. You deserve to enjoy it!

A CHECKLIST FOR SELLING YOUR BUSINESS - WHAT DO YOU HAVE TO SELL?

• Customer List
  Contact Names, etc.
  Demographics, Market Research

  Database of purchase histories

  Studio Equipment

  Tools

  Office Equipment

  Office Furnishings

  Computer Hardware and Software

  Inventory - Finished goods

  Raw Materials

  Real Estate - Home

  Studio

  Office

  Business Systems

  Checklists

  Forms

  Procedures

  Production Techniques

  Accounts Receivable

• Non-Competition Agreement
  Geographic Area
  Activities Prohibited
  Number of years
  Reserve any exceptions

  Date Liability Transfers

  Insurance Coverage

  Transition Procedures - Seller involvement

  Consulting Arrangement

  Pricing of Business

  Allocation to Parts of Business

  Tax Implications

  Alternative Views on the Price

  Financing

  Owner

       Tax Implications - Installment Sale

       Risk - Collateral

  Conventional

  Special Programs

  Collection of Accounts Receivable

  Payment of Accounts Payable

  Assurances as to Condition of Equipment