Once you determine to sell your business, it is important to recognize that it may be the most important financial transaction you’ll ever make. Selling a business – in the right way and on terms beneficial to you – should involve the kind of planning and hard work you put into building your business. We can help you structure a succession plan that is consistent with your overall financial goals and needs, and one that provides both short-term and long-term security for your wishes of ownership control and financial well-being.
Valuing your business is one of the most important and difficult aspects of the entire transaction. Tax returns, audited financial statements, and other documents are essential in demonstrating business performance and helping a prospective buyer understand the company. However, valuing your business is only one of many general steps in the sale of a business, whether you’re selling it outright to an unrelated third party or transferring the ownership down to family members already involved in the business operations
Other steps in this process include: developing a business plan to determine whether it’s in your best interest to sell and to set out a targeted strategy with a clear end in mind, searching for potential buyers, designing a comprehensive marketing tool to give to potential buyers, considering offers and negotiating the sale, and structuring the actual transaction. All of these steps are critical to the successful transition and sale of your business. Without doubt, one major aspect to analyze prior to the sale of a business is the tax ramifications. The owner should consult with a specialized tax accountant during the final negotiations to avoid common pit-falls and mistakes.
We understand that many small business owners don’t want to consider the idea of selling to a stranger or to a family member. Because of this, they may lack a clear succession plan, so that, if they were to die suddenly, their business may be forced to be sold by family members for a fraction of its value just to pay the taxes due. Thus, we seek to help our clients by creating effective succession plans to allow a gradual and agreeable method for shifting control of the business for an appropriate value.
The key to this planning is the Buy-Sell Agreement. This is a funded agreement and binding contract that spells out exactly what is to happen if one of the business owners dies, becomes disabled, or decides to sell his or her interest in the business. It generally calls for the remaining owners to buy the departing owner’s interest in the business, spells out the purchase price, and guarantees that the purchasers of the business interest will have the necessary cash to complete the purchase from the departing owner or their estate. Typically, Buy-Sell Agreements are funded with life insurance policies (and sometimes disability buy-out policies). It is important that an attorney knowledgeable in this area, as well as in tax and estate matters, draft this document. For more information, please contact us.