Entrepreneurs are frequently advised to begin with the end goal in mind. Oftentimes, that is to one day sell the business they built for a handsome profit. Indeed, 65% of business owners plan to sell their companies in the next decade, according to Pepperdine University’s 2018 Private Capital Markets Report.
Of course, selling a business isn’t just about maximizing the profit, although this is an important consideration. For many business owners, the liquidity event that typically results from transitioning ownership can be life-changing and requires a good bit of preparation—especially if you’ve historically let your personal finances take a backseat to your business objectives. Before you hand over the reins, it’s important to consider a few key issues that may not only impact your decision of when and how to sell but also how you’ll manage your newfound wealth post-sale.
1. Position Your Business for Maximum Value
For many successful entrepreneurs, receiving an unexpected offer from a motivated buyer is not uncommon. It’s in your best interest to make your business appear as attractive as possible to outsiders, whether you’re planning to sell or not.
The first step is to review your financials. If you’re running expenses through the business that are more personal in nature or have outstanding loans to family members or other business partners, it’s important to resolve these issues before turning over the books to a potential buyer. In addition, you’ll want to make sure your receivables are current and, if possible, your financial statements are prepared in accordance with Generally Accepted Accounting Principles (GAAP). If necessary, you might want to have an outside auditor review your financial statements to ensure accuracy.
Beyond financial planning, it’s usually helpful to confirm that all contractual arrangements are current, especially contracts with key employees. You can also look for opportunities to improve corporate governance and operational policies and procedures. Though these may seem like minute details, they can make a significant difference when courting interested buyers.
2. Look for Wealth Opportunities
Without proper financial planning, the sudden onset of wealth can be overwhelming. For many business owners, selling a business results in an unprecedented windfall of cash that should be prudently managed. The transition can become even more complex when your financial goals include passing on proceeds from the sale to family members. Fortunately, several tactics can be employed to help you and your family achieve your future financial goals.
For example, financial vehicles such as trusts can be utilized to minimize the tax impact of transferring equity or cash to a loved one. In addition, you’ll want to consider the various options for structuring the sale and any long-term tax consequences before finalizing the transaction. By carefully considering these details in advance, you may find unique opportunities to maximize your long-term wealth potential and minimize your tax burden.
3. Build the Right Team of Advisors
Selling a business has a multitude of moving parts. Not to mention, it can be an emotional process if you’ve worked in the business for many years. To ensure that your best interests are at the forefront of any sale, it’s essential to build the right team of professional advisors.
As you prepare to sell your business, consider assembling a team of trusted advisors that includes:
- A wealth management advisor
- An attorney
- A business accountant
- An insurance professional
- A banker or trust officer
- An expert business appraiser
In addition, a family communications consultant or family psychologist can be helpful in many cases to facilitate family discussions about the sale of the business. No matter whom you choose to add to your team, having the right experts at your fingertips helps to ensure that you’ll achieve the best outcome that’s aligned with your goals.
Selling a privately-held business is no doubt a challenging and emotional undertaking. For the best results, it’s critical to consider all aspects of the decision. This means putting your best foot forward, carefully evaluating the financial impact of such a significant transaction, and assembling a team of expert advisors to help you navigate the process.
If selling your business is in your future, talk to your wealth advisor about your options.