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Preparing to Cash Out

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Updated July 26, 2022

Christine Schmidt, CFP® Managing Director, Family Office

Business owners looking to sell should use a team approach and seek guidance before selling

Today’s economic environment yields great conditions for selling your business. Generally, for businesses that came out of the COVID-19 recession successfully, valuations are up and buyers are interested. We’re hearing about business owners receiving multiple offers with many buyers wanting to move quickly.

Selling your business is a complicated process and we’ve seen sellers make avoidable, and sometimes costly, mistakes because they didn’t have guidance from the very beginning of the sale.

If you’re considering selling your business, get help before you start the process. You need to understand the sale holistically in order to come up with the best plan for your needs and to make sure the sale is structured in a way that is most beneficial for you. Here are some of our basic recommendations when selling:

Get an Accurate Valuation

We’ve seen people come in with an offer looking for advice on putting their proceeds in trust or investments. We’ll ask, has your accountant looked at this offer? Are you sure this is what your business is worth? Before you think about purchasing your next business, a new house, or investing the sale proceeds, make sure you’re working with the right numbers. Even with a large offer, you could be leaving money on the table if you skip this step.

Assemble a Team

Selling your business requires a team approach; you cannot do this alone. All parties need to collaborate to determine the best structure for your sale that will reduce your tax implications and support your financial security. Here’s a dream team roster:

  • Business advisor – This could be your business attorney, or the person helping you to market and sell your business.
  • CPA – This could be your personal CPA or it could be your company’s CFO, but it should be someone who can look at this deal from a business and individual tax perspective.
  • Business broker – This person can market to other types of investors that you may not otherwise find or consider.
  • Appraiser – This could be an independent appraiser or your accounting team; whoever can help you get an accurate valuation and has knowledge of the business and current market.
  • Estate attorney – This attorney is different from a business attorney. They will help you consider your long term plan and determine the best way to shelter your proceeds in a variety of trusts or charitable options.
  • CERTIFIED FINANCIAL PLANNER® – You need someone who can evaluate the moving parts of the deal and ensure that the sale meets all your financial goals. A CERTIFIED FINANCIAL PLANNER® can look at what your expected lifestyle really costs you when you have to buy services or products outside of the business and help determine the best way for the proceeds to be received. They also can help with cash flow planning to ensure funds are available when needed for lifestyle and taxes.

Consider Your 401(K) Options

Before going into negotiations, make sure you get good advice about your company’s 401(k) plan’s options, which include merging the current plan to the acquirer’s existing plan, terminating one of the plans, or keeping both of the plans separate. These options depend on the type of transaction — whether it is a stock or asset sale. Many people overlook the company 401(k) plan when they sell their business. However, it is an important consideration, since any decision you make will not only impact your employees, but you as a plan participant.

Prepare for Emotions

Selling a business is a complex emotional process as well as a financial one.

One thing we’d like to emphasize is that selling your business will involve emotions. Many clients feel as though their business is an extension of their family, and it may sound like an exaggeration, but we’ve seen individuals go through a grieving process throughout the sale. We can help ease the transition. Having conversations with your Trust Point advisor about what you envision for yourself and your family as well as your proceeds — whether you keep them in trust or use them to start a foundation — will help you ensure that your legacy will transfer in a way that aligns with your values and wishes.

Reach Out

A Trust Point professional can help your business sale go smoothly. Consider us your quarterback with respect to tying these parties and decisions together. We can help ensure that you understand all your options and that the financial, tax, and estate plans are all in your best interest.

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Christine Schmidt, CFP® Managing Director, Family Office