Selling Your Business? 5 Valuable Things to Know

By: Scott Sturgeon, JD, MBA, CFP®

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In comparison to selling other assets like stocks or even a house, selling a business can be a much more complicated and time-consuming task. If you’ve ever had the thought that “how do I sell my business”, before embarking on the actual journey of selling your business, here are 5 key points for you to consider as you look to ultimately exit your business. In this article, you’ll focus on the following:

1. Mapping out your Sale Timeline
2. Succession Planning 101
3. Finding Efficient Tax Strategies
4. Assembling the Right Team
5. Determining what Post-Sale Life Looks Like
6. BONUS!

 

1. Mapping out your Timeline

Selling your business can be a drawn-out process sometimes taking several years to complete. The process of even finding the right buyer could take that long! Between initially finding said buyer, negotiating sale terms, going through due diligence, closing on the sale, and potentially having a retention period where you stay involved with the business, it can be several years before you’ve completely exited.

For these reasons, the sooner you can gain a grasp of what your preferred sale timeline will look like, the better you’ll be able to set expectations, both mentally and financially. If you’re having feelings like it may be time to make a life transition and sell your business, those feelings are likely to increase over time. The sooner you can gain an understanding of how long it will take to go from initial letter of intent to finally receiving the sale proceeds, the better.

2. Succession Planning 101: Who runs things when you’re no longer there?

A major question to ask yourself in this process is what will your succession plan look like? Who will be running the business when you’re no longer involved? The terms of the deal may dictate how that will look such that you may not have to worry about it at all, but there’s little downside to having a plan in place. By having a finite succession plan, you’re showing a potential buyer that regardless of your involvement, the business can continue to generate revenue and that key employees that contribute to that effort are likely to stay with the company.

3. Finding Efficient Tax Strategies

As the owner of a business, depending on the entity structure of your business, you may be taking a W2 salary from your company and also taking distributions from the business as well. The net effect of receiving that large amount of compensation is you’re pushed into higher tax brackets. When you go to sell the business, being in those top brackets can become problematic as a large portion of your gross sales proceeds may need to be used to pay taxes.

To possibly circumvent paying so much in taxes in those higher brackets, it may be beneficial to implement a retirement plan for your business that allows you to make contribution amounts much larger than a SIMPLE IRA, SEP IRA, or even a 401(k). In doing so, you’re effectively shielding your income from being taxed during years you’re in a high bracket, putting it into a retirement vehicle where it’s invested, to then make withdrawals from the account in years where you’re in a lower tax bracket. The net result may be fewer taxes on your income over time.

4. Assembling the Right Team

Selling a business is a major transaction that you’re likely to only go through once in your life. Making sure you have a team behind you to support and guide you through the process of selling your business is critical. While the parties involved may vary, your core group is likely to be composed of some combination of the individuals listed below.

A Broker or Banker – Your business broker or investment banker is going to be tasked with creating a market for your business. That means finding potential buyers and overseeing the process of actually selling the business from initial negotiations to eventual closing.

An Attorney – Regardless of the size of the transaction, having an attorney involved to review the terms of the sale agreement is critical.

An Accountant – Your accountant may assist in the due diligence process by first ensuring your bookkeeping is correct, as well as helping to run tax projections of what the tax implications may be to you personally from the sale. Depending on where you live, taxes can be a significant cost in the sale of a business, so it’s important to understand what those amounts may be to then determine what your net proceeds will end up being.

A Wealth Advisor – Your wealth advisor’s role is to help understand and provide clarity on what the impact from the sale of your business is going to look like. That means explaining what to do with the proceeds from sale, looking for tax efficiencies in the years leading up to and during the sale, and ensuring you’re working to mitigate risk and create a plan for the future. Most importantly, a wealth advisor should help you through the emotional aspect of selling a business and gain insight into giving your hard-earned money a purpose to work towards what’s important to you.

5. What does life look like post-sale?

This point should be one of your higher priorities. If you’ve built a business up over many years, chances are you’re not the type to sit still for long. Watching daytime TV as a means of filling your calendar probably isn’t going to leave you feeling fulfilled, so consider taking time to really think through what your next phase of life is going to look like.

Maybe it’s spending time pursuing your hobbies like traveling or tackling home improvement projects. It could be supporting various philanthropic causes by joining the board of a non-profit or simply volunteering. It could even be starting a new business! Per Harvard Business Review, 45 is the average age someone starts a business. Sam Walton didn’t start one of the largest retail chains in the world until he turned 44. It’s never too late!

6. BONUS! – Maxing out a Health Savings Account (while you can)

In the full spectrum of priorities this one is probably lower on the scale of importance, but can be immensely helpful over the long term. With the ever-rising cost of healthcare, having an account dedicated to covering future healthcare related expenses tax-free can be really helpful. While you’re working and receiving income from your business you’re able to contribute to a HSA.

If you’re considering selling your business and aren’t sure where to start, we’d love to talk. Please contact us at info@oreadwealth.com or schedule time with us directly to discuss specifics of your financial situation and to see if working with Oread Wealth Partners could bring value in working towards your financial goals and objectives.

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