by Michael Evans, Founder & Wealth Manager

If you are contemplating selling your business, this is a life-changing decision that benefits from a sound strategy. Proper business transition planning typically takes three to 10 years and there are number of steps to take before you sell your business.

You have worked hard for years: be purposeful about how you want this to play out and what it means to you. You should employ a multi-disciplinary team – the brightest minds in specific areas, such as financial planning, estate planning, business valuation, tax planning and succession/planning to help achieve your personal, professional, and financial goals.

Take these TEN STEPS Before Selling Your Business 

  1. Prepare in advance of the sale. You have worked hard for years – Be purposeful about how you want the sale to play out and what it means to you and your family afterwards. Explore and clarify your life and financial goals. Determine what values to pass on, the financial needs going forward, concerns for yourself and your family at the forefront of your planning. Think of everything from the big picture to the smallest details.
  2. Prepare your business for sale. Knowing the value of your business is paramount to planning for your future. Ensure the financial records are in order, internal controls appropriate, all business expenses are in fact business expenses, not personal expenses. Your CFO, along with a great CPA will help optimize this for you. 
  3. Understand the tax profile of the asset you are selling. If your business is owned in a pass-through entity, the sale of assets will likely include Goodwill assets taxed at capital gains versus ordinary income. Depreciation recapture is taxed at ordinary income. If there are assets on your depreciation schedule that you no longer own, remove them prior to the sale to minimize ordinary income tax consequences.
  4. Hire a Mergers & Acquisition advisor. M&A Advisors help sell your company to strategic and financial buyers at the best possible price and terms. The right advisor with the experience and expertise in selling a business like yours should be involved in all phases of the transactions, position the business for sale at highest / best terms, and leverage their high-quality network of other trusted advisors.
  5. Tax plan early. Selling your business could be the largest transaction you will ever make. Optimize the proceeds and position yourself to have a lifetime of spendable income, mitigate the taxes you pay now and throughout the remainder your life and possibly your heirs’ lives. Most tax planning is focused on minimizing Federal tax liabilities, but with some state income tax rates as high as 13.3%, strategies to reduce state income tax liabilities are increasingly popular. Consider “NING” trusts or other tax mitigation strategies. 
  6. Plan charitable giving before the sale. If you have charitable intent, the sale of your business offers an opportunity to set up a Donor Advised Fund. A portion of business proceeds can fund a number of years of future gifting, mitigates ordinary and capital gains taxes, and creates charitable giving deductions. This is an opportunity to develop and share your values of philanthropy with your family members and future generations. 
  7. Time for a family financial audit. Sit down together with your partner and review all things financial. This can be a real stress-reliever during the sale. Become familiar with the following essentials for each of these: Income / spending levels; banking / investment accounts, retirement plans; outstanding debt (including mortgages, college loans, credit cards, lines of credit); estate planning documents (wills, trusts, advance directives or “living wills”) and insurance policies (home, auto, life, medical, long-term care). 
  8. Gather your personal financial team. In addition to knowing what you have, it’s important to know who you can reach out to for help. Essential financial knowledge builds confidence and confidence is in short supply as transitions occur. A fiduciary wealth advisor can be a leader to your team of experts: your CPA, estate planner, risk management professionals, business attorneys and charitable / philanthropic experts. 
  9. Create a family mission statement. Engage your family members to develop a mission statement. Successful, generational planning starts with determining your family’s mission. The wealth creators’ views are paramount, including what your wealth means to you for future generations. What role and responsibilities do you want for them? Wealth creators / entrepreneurs don’t want their family member to develop a sense of entitlement. It is critically important set proper expectations for what the family can expect.
  10. Protect your wealth from creditors and pillagers. You are not average; your asset protection and liability coverage shouldn’t be either. Your wealth is exposed to potential creditors and pillagers after the sale. You will now be a target for lawsuits, accidents, cybercrimes and other unjust takings. Take the steps to prevent stress and preserve your wealth should a series of unfortunate events happen to you or those you care about the most. Review your insurance policies covering homes, autos, boats, UTVs and RVs. It is imperative to ensure your coverage is effective and appropriate for your wealth. An Excess Liability Policy is imperative. Make sure your assets are titled appropriately and are transferred to the appropriate asset protection vehicles such as irrevocable trusts, LLCs and family limited partnerships.  

Are you Living Life on Your Terms? Engage with a fiduciary wealth manager who seeks to understand you and develop a plan tailored plan to match your exact needs and aspirations well before you monetize your business. At Cogent, our Design | Build | Protect Life on Your Terms strategic approach guides our high-achieving families every day. 

In the end, 

Achieve clarity. Live your life now, and when you think about the future, be confident you’ll end up exactly where you want to be.

Feel empowered. A financial strategy incorporates layers of hard evidence and is designed around your true needs and wants.  

Gain a partner. A fiduciary advisor puts your interest first and gets to the core of your values and goals to collaborate as life happens. 

Live Life on Your Terms. Take the steps above to maximize and optimize your wealth before and after the sale. Position yourself and those you care most about to Live Life on Your Terms with these steps to take before you sell your business.


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