You’ve worked hard to build your business and now you’re considering selling. The process takes considerable planning and preparation well in advance to help maximize the value. Here are 10 things to consider:
1. Determine If A Sale Meets Your Cash Flow Needs. Each of the more than 70 times – without exception – we have assisted a client through a liquidity event, the client has experienced a need of 20% more cash flow than originally expected due to additional leisure time for travel, vacation and other luxury items. Before concluding that a sale will satisfy your future cash flow needs, take the time to identify your anticipated needs, add 20% and then decide if you’re ready to sell.
2. Prepare The Business For Sale. Do your due diligence: make sure your books are in order, implement good internal control measures, and ensure all business paid expenses are in fact for the business rather than personal. Your buyer will examine to see if this is done so it is better to be ready before they start their due diligence.
3. Start Tax Planning Early. Depending on how your company is structured when it is sold – LLC, C-Corp., S-Corp. – and what state it resides, you could experience different tax implications. Early in the process, the wealth creator should meet with a tax expert to ensure the corporate structure is set up to be most tax advantageous and determine if a change of residency is warranted.
4. Conduct Safe Cybersecurity Practices. It is vital for entrepreneurs to educate themselves and their children on safe cybersecurity practices including password protection and proper use of social media. Be very cautious about what you share and with whom.
5. Consider Gifting Strategies. The gift of ownership in a closely held business offers an extremely favorable valuation opportunity where an owner can maximize annual gift tax exemptions and use of their lifetime exemption. If you anticipate receiving sufficient proceeds to afford gifting, be certain to make your transfers before you receive any letters of intent.
6. Conduct Dynastic Planning. Outline how much money you want your children to receive, at what ages, and under what circumstances. With larger estates, consider using trusts to benefit your children and more remote descendants so they will not be taxed on the money remaining in trust at their deaths.
7. Protect You And Your Family From Creditors And Predators. You just sold your company. That means you and your family are now targets. Structure your assets to ensure a layer of protection from creditors by placing them in asset protection vehicles such as irrevocable trusts, limited partnerships or limited liability companies. With the average divorce rate at 50%, these vehicles may be structured so your wealth stays within the family bloodline.
8. Author A Family Mission Statement. Successful planning starts with defining your family mission statement. This is critical for articulating the family values the wealth creator would like disseminated to the next generation and beyond. Plan for yourself, and your family, so they understand how the wealth should be used and to what purpose.
9. Educate Your Family. Most entrepreneurs want to assist family and friends, however you need to be careful of creating a sense of entitlement. Education for you and your family members is critically important. Entrepreneurs need to set proper expectations and also put in place the proper vehicles where family and friends cannot access the wealth inappropriately.
10. Examine Titling Of All Assets. All assets must be properly titled and transferred into the proper trusts. If assets are not titled properly, no amount of estate planning in the world will be enough to protect your assets for future generations.
It is well worth the effort for early and careful planning to help identify and avoid potential roadblocks on the path to success.
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PagnatoKarp has assisted more than 70 entrepreneurs through their liquidity events and pre-sale planning processes. We focus on tax savings, cash flow strategies, estate planning and risk management — before, during, and after the sale of a business. Your advisory team coordinates efficient execution to move you toward your goals for financial independence.
PagnatoKarp helps streamline lives through an Intelligent Wealth Management™ Experience of high-touch sophistication, expert advice and transparency. Family Office Fusion combines investment, planning, tax, legal, private banking, family coaching and lifestyle services for the ultra-high-net-worth. True Fiduciary® standards put your best interests first. The goal? Simplify and elevate your lifestyle so you have more time to spend on what matters to you most.
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Our Wealth Management Experience helps streamline your life through high-touch sophistication, expert advice and transparency.
Family Office Fusion for investment, planning, tax, legal, private banking, family coaching, travel and lifestyle services.
True Fiduciary® Standards: Your best interests come first.