Selling Your Business? Ask Yourself These 3 Crucial Questions First
Selling a business is a pivotal moment that can stir a range of emotions and bring positive and negative life-changing outcomes. As a business owner, it’s easy to lose sight of your own needs once the process begins. Before you move forward with selling, take a moment to ask yourself these three crucial questions.
1. What Are My Personal Goals?
Before starting the process of selling your business, it’s essential to have a clear vision of what you want your life to look like afterward. There’s truth to the old saying, “Money changes people.” In our experience, it does. It’s far easier—and healthier—to have honest conversations with your loved ones about your plans before any dollar amounts enter the picture.
How?
- Define Your Goals: Determine what you might like your life to look like in five years, 10 years, or 20 years. This might include vacations, education funding for grandchildren, a new home, or a family-run charitable foundation.
- Know Where You Are Now: Take time to honestly assess your current situation. Where you stand today will shape what’s possible for you in the future. Be self-aware; selling your business will be a significant transition, and having a clear understanding of your starting point is the foundation for navigating that change.
- Make a Plan: Collaborate with a team of trusted professionals to build a clear roadmap toward your goals. Having ideas is one thing—making them a reality is another. When this liquidity event happens, you’ll want a well-thought-out plan ready to implement, giving you confidence that your goals are within reach.
2. Have I Explored the Details?
Selling a business can carry major tax implications, and optimizing your tax strategy before you sell will help you retain more of what you’ve worked so hard to build. Proper tax planning can significantly impact the net amount you walk away with to fund all your goals and dreams for you and your family’s future.
How?
- Have a Tax Professional on Your Team: Before you implement any strategy for selling your business, it’s crucial to understand the rules. As you shape your exit plan, having an experienced tax professional by your side isn’t optional—it’s essential.
- Consider Pre-Sale Strategies: There are several ways to structure the ownership transfer of your business, each with different tax implications and potential impacts on your final net proceeds.
- Acknowledge the Tax Bill: No matter how many strategies you and your team implement, a significant capital gains tax bill is likely, and that’s normal and expected. Recognize it upfront, identify how you’ll cover it within your plan, and be prepared to execute when the time comes.
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3. How Do I Prepare the Next Generation?
While modern medicine has assisted in extending our lifespans, none of us live forever. The proceeds from selling your business, however, have the potential to outlast you, providing for your family and future generations if managed wisely.
How?
- Review Your Estate Plan: Just as you assess your goals and financial position, it’s essential to understand what your current estate plan says and how it might impact the sale of your business. This clarity provides the foundation for identifying any updates or adjustments you may want to make.
- Consider the Who, How, and When: Who do you want to benefit from the sale of your business? How do you want them to benefit? Do you want to be there when it happens? It’s best to answer all of these questions before the sale of your business.
- Have an Estate Planning Professional on Your Team: As you assemble your team of professionals to help you create a plan to meet your goals, it’s essential to involve an experienced estate planning attorney. It’s best to implement many effective tax strategies and long-term planning objectives through legal structures like trusts, foundations, or LLCs.
Bottom Line
Selling your business goes beyond assessing its performance. The emotions tied to such a significant decision are real, and it’s important to recognize that people tend to be less rational when feeling sad, angry, frustrated, or stressed. Waiting until you’re deep into the process of selling your life’s work is not the right time to start considering what you want your future to look like. Begin thinking about it as soon as the idea crosses your mind—“Maybe I should sell.” That’s the path to a successful exit.
This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Savant. Please consult your investment professional regarding your unique situation
Scooter Thomas
Financial Advisor
CFP®, ChSNC®, ChFC®