Are you looking for the exits? More business owners, especially those nearing retirement, are looking to sell given the great uncertainty caused by the pandemic and election-year politics. Before you proceed with a sale, however, I suggest you take a deep breath and ask yourself: “What’s MY bottom line?” At a presentation for business owners, I talked about the importance of focusing on YOUR bottom line as you ponder a buyout offer or hire an M&A specialist to advise you.
Why? Because what may seem like an attractive buyout offer may not pencil out to be reasonable in light of your financial situation and your life goals. We have seen this first hand. So we are quick to caution clients about accepting offers without first doing the number-crunching and planning required to set their life on the right path, post-sale.
Here are some key things to consider as you ponder a business sale:
- How is the deal structured? If a big percentage of the payout is based on future business performance, best to assume the worst and focus on what you’ll be getting up front.
- After fees and taxes, what is the bottom line number, and how much of that will YOU get to keep?
- Is that amount enough to sustain your current and future living expenses, including healthcare and other major expenses?
- Will you want substantial capital to invest in another business or to fund philanthropic interests?
- Are you ready to be known as something other than a business owner?
Lots to Consider
If a deal seems like a good idea, realize that going ahead with a sale will change all the planning you’ve already done – opening up more options as well as pitfalls. What was once an illiquid asset will become money to spend, invest, and give away. A sale allows you to do new things for yourself, your family and your community, while taking advantage of different types of tax and estate planning strategies.
For example, the need for costly life insurance may diminish since you’ll have more options about how to pay estate taxes.
Finally, planning well in advance of a sale is critical if you want:
- A big part of the sales proceeds and related taxes to pass on to your beneficiaries.
- To transfer your share of the business as a gift, when the business valuation is relatively low.
- To transfer your share of the business to a charitable organization well before a sale is imminent, so that you avoid having to report gains on the sale.
Pro-active Planning
At LNWM, there’s a great deal we can do to help you fully prepare for the sale of your business. But if you start planning just prior to the sale, you may not have the time or even the right mindset to ensure that you make a decision that’s in your long-term interest, both financially and in terms of what you want to accomplish in life.
