Business transitions take many different shapes, but one constant is the need to plan ahead and find support early in the process. Perhaps the biggest misconception is that the sale is the end goal. It’s so much more than that, and not just from a personal finance preparation or planning standpoint. One of the primary goals is to get the best price, but it’s also important to maximize your net proceeds, ensure equitable treatment of your heirs, and address various other considerations, particularly if it’s a longstanding family business.
At Trust Point, our job is to be the quarterback and help unify the entire team to make it through the life cycle of an exit plan. Often, we get brought in closer to a sale date, but when we are involved early on, that’s when we can provide the most benefit. We’re able to help create more robust plans. There are a lot of variables that can affect a sale and they actually have to come together as expected to close. Ideally, if you’ve decided you’re going to sell but aren’t sure if it’s in the best shape to get the highest dollar, you can begin working with a professional and allow about 3–5 years for the sale to take place. We recommend a minimum of 1–2 years if you’re in that mindset.
Six Questions to Ask Yourself Before Selling Your Business
1. What’s life going to look like after retirement?
When you think about the areas that need to be focused on as part of getting ready to sell, you start with the personal. Based on that, what could be done to make this the best outcome
from a financial standpoint? A lot of what we help with is educating clients on what their lives will really look like after the sale.
Business owners have typically spent a good portion, if not all of their lives, building a company that has helped them sustain their standard of living. They know all the levers to pull, what
works, and what doesn’t work. But once they sell, now they’re relying on investment assets, the actual cash or portfolio, to support their livelihood. It’s a really big transition for business owners to just relinquish and transfer responsibilities. It takes time to get more comfortable with not relying on their day-to-day activities to make sure that they’re getting a paycheck, but we’re here to help with that transition.
2. Is the business ready to be sold?
This is huge because it covers everything: the people you have, the cash flow, whether you’re implementing a strategic plan, the financial performance, the company culture, technology in general, marketing, branding, and then really making sure the succession planning and contingency plan for succession are in place. It’s important to assess all of these components prior to the sale.
3. Do you have a contingency plan?
We’ve seen so many well-intended deals just not work. In fact, there’s a statistic that only 30% go through as planned to the purchaser. If you have this perfect world of who the buyer is going to be and what the price is going to be, and that doesn’t work, are there other potential buyers? Is there a group of executives in your company that could be the buyer? Is there an employee purchase plan? Another possibility is that the owner says, “I’m not going to sell it” at the last minute. Then it’s figuring out how to still have some of the responsibilities of running the company, but in reduced time, with a plan to sell down the road.
4. What’s the best strategy from a tax standpoint?
You can annually gift minority shares to family members, and possibly even employees, which can transfer some ownership and reduce the owner’s tax obligation. When you gift minority shares, you can have a discount on the value of those shares, so it doesn’t count as heavily against your lifetime gift exemption (the amount of money you can give away without being taxed). It’s really efficient to be able to gift ahead of time. If you can do that for multiple years and not just the year before you’re going to sell, it can be pretty powerful as far as reducing that tax bill to the original owners.
5. Are the lines of communication open?
Good communication minimizes family friction. A lot of things can happen with a family-run business, especially if some family members are in the business and others aren’t. Treating heirs fairly is easily the most common issue we see. It’s really about reducing the family friction and having everybody on the same page. By having open communication, those feelings can be addressed rather than allowing them to fester.
6. Who’s on your team?
To complete all these items, you’re going to need partners to help facilitate what needs to be done. Trust Point’s main expertise is in the personal financial realm and as mentioned, we often
act as the quarterback for the team, which could include financial professionals like us, Certified Public Accountants, insurance agents, an owner readiness coach, business valuation consultants,
and others. You can be confident in our ability to lead you and all stakeholders through any obstacles and ultimately get the winning sale — and retirement — you want and deserve.
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