SELLING YOUR BUSINESS • PART THREE

SELLING YOUR BUSINESS  •  PART THREE  

Get a Business Health Checkup 

The next logical step in the process requires an early start — how early? Eighteen to twenty-four months in advance of a possible sale . That may sound extreme in terms of timing — wait until we get to the tax step!  

A Full Business Health Checkup  

This step is the equivalent of going in for a full physical. Here, we’re talking about a full health review of your business.  

Start with a review of the financial statements — the ratios, for example. Are these in line with your industry and your competitors? You may have what appears to be attractive cash flow, but how does it compare to industry averages, or to your industry in your area? Financial statements speak to the health of a business, if you understand the language.  

• Are there undetected operational issues or customer trends that could undermine future profits?  
• Are there organizational inefficiencies that are costing you profits?  
• How are the profits being used — stripped out, or reinvested for growth?  
• What product line is most popular? Which line is producing the most profit?  
• How are marketing results being tracked and accounted for?  

Financial statements need to be clean. What do I mean by that? They need to have a balance sheet and income statement. The balance sheet needs to be reviewed to ensure accounts payable and accounts receivable are accurately stated . The assets that are recorded on the balance sheet need to be looked at to ensure those assets still exist in the business. For example, computers come and go every few years, you may have items from years ago, machinery, electronics, office fixtures and furniture that is no longer used but is still on the balance sheet. The income statement needs to be clean. What does that mean? The last thing a potential buyer wants to hear is the phrase “we need to talk about the income statement ”. What that signals is that there has been a lot of personal expenses run through the business. Now the income statement must be adjusted to account for this. I have seen everything from a few minor personal expenses to multiple cruise ship trips run through the business. A buyer needs and will insist that the income statement and balance sheet accurately reflects the financial condition of the business.

These are just a few of the many questions that arise and need to be considered. An evaluation by a specialist can identify trouble spots and create strategies to shore up weaknesses before the business goes up for sale.  

Why These Reviews Matter  

These reviews are critical to helping you get the most value out of your business and understanding your options when negotiating deal terms. A common situation that comes up in negotiations is that the buyer often wants to pay a portion of the sale price with future proceeds of the business, rather than paying it all at the time of sale. But if the business is worth more than you need for retirement — or your metrics surpass the industry average — you may be able to command a higher price, or more money up front.  

A Tax Strategy Worth Considering Early  

Without getting ahead of things, (In part 5 I will look deeper at the tax implications of a sale ),  a simple tax strategy could surface here in the valuation process. If your current value is below average, or at average, but you have strategies in place to raise that value over the next 24 months or more, now may be the best time to gift shares of the business (assuming it’s a corporate structure) to family members.  

Why Now?  

While you want a high valuation at the time of sale, it may be beneficial to gift shares while the valuation is lower. That’s because gifted shares in a business count against your lifetime gift tax exemption — — currently $15 million per individual and $30 million for married couples in 2026, indexed for inflation. ¹   Gifting shares at a lower valuation uses up less of that exemption. And if you stay within the annual gift exclusion, a lower valuation lets you transfer more shares, or a larger fraction of the company, within that same exclusion.  

Gifting shares at the right time can pay off again later. When you set up your estate tax plan, splitting up shares of the company can create a minority discount valuation on the tax table — which could save a potentially significant amount of tax.  

Assembling the Right Team  

By engaging a team of advisors and specialists as needed, you put yourself in the best possible position to optimize your business for the strongest sale price.  

When we work with you as your lead advisor, we work directly with your CPA and attorney. We also have our own in-house team that specializes in business transition planning, including a business broker if you need one. We’re prepared and ready to help get you ready for what may lie ahead.  

Helping you plan to keep more of what your work for

¹ Source: One Big Beautiful Bill Act, Pub. L. 119-21 (2025), amending Internal Revenue Code §2010(c); IRS Revenue Procedure 2025-32 (2026 basic exclusion amount of $15,000,000 per individual). The lifetime gift and estate tax exemption is a single unified amount. Married couples may combine their individual exemptions, including through gift splitting. Exemption amounts are adjusted annually for inflation. 

This article is for general informational purposes and is not personalized financial, legal, or tax advice. Please consult with a qualified professional regarding your specific situation. Neither Cetera Wealth Services LLC nor any of its representatives may give legal or tax advice.  

Securities offered through Cetera Wealth Services LLC (doing insurance business in CA as CFGAN Insurance Agency LLC, CA Insurance Lic# 0644976), member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.  

Sean Bracey, Financial Advisor  

Three Pointe Drive, Suite 201, Brea, CA 92821  

(562) 902-6560 | www.Montagewealth.net