Well, we’ve covered a lot of ground on the subject of selling a closely-held business – including tax considerations from the buyer’s standpoint.
This week, we recap to present a few top tips sellers should consider key when preparing for a sale:
- When you find yourself beginning to think about selling your business, get your ducks in a row. Make sure all corporate documents, licenses, permits, contracts, tax returns, etc., are current, and make sure you are in good standing with your Secretary of State. See to it that all policies and procedures are fully documented, job descriptions complete and current, and staff cross-trained to cover emerging contingencies. You can do this before taking any other steps, though your Transaction Advisory Team (see below) should vet your efforts for completeness.
- Assemble the best Transaction Advisory Team you can. This team is a crucial and critical resource throughout the process, and should be assembled before you do anything else in furtherance of the sale. You will need an attorney, well-versed in representing sellers of closely-held businesses; a financial advisor, also skilled at transaction advisory services; a CPA highly familiar with the tax aspects of such a sale. You may want an additional advisor who is experienced in marketing businesses in your industry. Again, your Transaction Advisory Team is an essential part of the sales process, and can help you at every stage – assemble them, trust them, use them.
- Understanding the process – here’s one of the first things your Transaction Advisory Team can help you with – they will explain the steps involved, the boxes which need checking off, and what you can expect. It’s always better to be prepared for what’s coming, to the extent possible, and your Transaction Advisory Team can ensure that you are equipped with all the information and understanding they can provide, which, if you’ve chosen them wisely, will be considerable.
- The letter of intent – don’t be in a hurry to sign! All too often, left to their own devices, sellers and buyers put their heads together, agree to a purchase price, payment terms, and indemnification (as well as its limits), and forget everything else that needs to be considered in a really well-prepared letter of intent. There are many other elements to the sale which should be pinned down, at least in preliminary form, in your letter of intent. Never sign one without the approval of your attorney, your financial advisor, and your CPA as well. If they think it’s not in your interest to sign the letter of intent without changes, it almost certainly isn’t, so make those alterations!
- Structuring the transaction – whether you and your buyer ultimately select an asset sale or a stock sale, understand the differences between these two sales options, and why they matter. Here, again, your Transaction Advisory Team, who are your experts, can help explain the differences and how they may impact the transaction as a practical matter for you, with particular reference to the tax consequences of each option.
- Stay calm and patient. Selling your business is a protracted and complex matter, and there will likely be points at which you will feel frustrated and annoyed. Don’t give way to those feelings – we are all most in control when we control ourselves. See the obstacles as opportunities. Mindful patience with the process can help you through it much more smoothly.
- Think about what your life will look like after you’ve sold your business. Many entrepreneurs experience a feeling of loss. These feelings come about, I think, because some entrepreneurs haven’t prepared themselves – you are giving up your business, your principal occupation, and a significant source of human interaction – your team, your customers, maybe there’s even a vendor or two you’ll miss dealing with. This will leave a significant space in your life – be prepared to fill it up with people and activities you love. That’s a big part of a successful sale – that you feel satisfied with the outcome – and a good portion of this is in your control. Don’t let yourself be at the mercy of events – be their master!
These are only a few tips – once again, when selling your unique business creation, consult and trust your Transaction Advisory Team.
If you are considering the potential sale of your business, I recommend strongly that you consult with us before making any major decisions – and the sooner the better, as the process of selling a closely-held business can take six months to a year, and sometimes longer.
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Until next time –