SELLING YOUR BUSINESS • PART TWO
SELLING YOUR BUSINESS • PART TWO
Assemble Your Team
The founder and owner of a business faces several complex issues and decisions when considering an exit — from valuing the enterprise, to structuring the sale, to adjusting the tax and estate plan in response to a new financial picture. Accomplishing this well requires a team of specialists.
In keeping with our theme of getting an early start, assembling your team of advisors early is paramount to a successful outcome.
Common Advisor Roles
Let me identify some roles that may or may not be necessary to your situation, but here are the advisors most commonly involved :
Merger & Acquisition (M&A) Advisor or Business Broker
This role helps manage the sales process, acting as the “quarterback” to locate buyers and negotiate and structure a deal that works for both seller and buyer .
Valuation Specialist
A valuation specialist performs a deep dive into the financial side of the company, comparing its performance to industry peers and geographic competitors. Are the financials fairly stated, and will they hold up to a buyer’s review? Are there items that need to be adjusted on the financial statements? This work is often handled by the seller’s accounting firm.
CPA
The relationship you have with your CPA continues throughout the entire process to ensure consistency across the tax and financial reporting documents provided to buyers. Your CPA will also be instrumental in addressing the tax implications of the sale.
Merger & Acquisition Attorney
This member of the team drafts and reviews all legal documents related to the sale. This may include non-disclosure agreements (NDAs), employee agreements, and purchase and lease agreements — and, most importantly, works to insulate you from future liabilities.
Trust and Estate Attorney
This advisor reviews how the sale affects your personal trust and estate plans, working with your financial advisor to assess potential estate tax issues that may arise from the sale and to mitigate the tax consequences during and after the sale.
Where to Start
Begin with your financial advisor. They will be your quarterback, and you are the general manager of the team. Your advisor will work to assemble the specialists who will help you navigate the process, maintaining a “big picture” view of what’s evolving and ensuring all the bases are covered. At this stage, it’s important to create a "roadmap" and a “briefing book” with the key details about your business, your goals and objectives for the sale, and your long-term strategy.
Why an Early Start Matters
A runner planning to run a marathon begins training years ahead of race day. Your preparation for a sale should begin just as far in advance.
By planning ahead — often years in advance — you can uncover ways to optimize profitability and other financial efficiencies that have the potential to result in a higher sale price. Identifying possible buyer candidates early can also set up a path toward a more streamlined sales process.
Putting off the pre-planning process can have serious consequences: a reduced sale price, a shorter list of possible buyers, and lost tax strategies — some of which take a year or more to implement — resulting in significant tax costs at the time of sale.
Your CPA, M&A advisor, or business broker are instrumental in this advance pre-sale process, helping you analyze and determine how to optimize the value and price of your business before you enter a sales agreement.
Positioning Your Business for Maximum Value
Here are a few points to consider as they relate to the value of your business:
Assess Your Own Role
Evaluate your own role in terms of the ongoing health of the business. How dependent is the business on your personal contribution? If your company relies too heavily on your knowledge and expertise , your valuation could suffer. Consider delegating more while you still have oversight, and invest in upgrading the skills of your management team. Reducing your role as the intrinsic value driver of the firm improves the company’s valuation.
Separate Your Finances
This is a common issue. If you’re channeling personal expenses through the company, it can harm your credibility with the bank, set up a potential tax audit, and — importantly — reduce the profit shown on the income statement, which affects both valuation and sale price. Separating personal from business expenses creates a clear financial picture for a potential buyer and supports a stronger valuation.
Understand Ownership
This begins with the type of entity you operate , sole proprietorship, corporation, S-corporation, Partnership, or LLC. Each carries different tax implications when a sale is pending. With advance planning, it may be more beneficial to convert from an S- Corp to a C- Corp , or from a sole proprietorship to an S- Corp — though all of these moves carry significant tax implications. Handled correctly, they can create tax savings; left unplanned, they can create tax losses. Ownership can also shift over time as owners trade equity for liquidity or services. Having a clear understanding and record of ownership supports a well-planned outcome.
These are just some of the actions that support a clean sale process and have the potential to increase the value of your organization. Your financial advisor and the team of specialists you put in place can guide and support you into — and through — the process.
Keep More of What You Work For.
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 and advisory services 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