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How to successfully sell your business

To ensure the sale of your company is ideal for you, your family and firm, consider these five stages of business and personal readiness

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WHEN YOU’VE SPENT DECADES building and nurturing a business, it may feel like there’s never a good time to step away. Eventually, however, you must decide who will take ownership after you.

While the most common solution is to sell outright to a third party, most owners are surprised by the complexity of the sale process, and the difference between the skills required to build and run a business and those required to sell it. Getting full value for their company is the primary goal of many sellers, and while most appreciate the importance of an exit strategy, few are taking critical steps for a successful transition, says Bill Weihs, senior vice president, business owner strategist, Bank of America Business Owner Strategic Services.

Recent surveys of business owners by Exit Planning Institute (EPI)1 show that many owners have little to no exit plan in place, even though 80 to 90% of their net worth is tied up in the business itself. EPI estimates that about 4.5 million firms representing more than $10 trillion in business value will transition over the next decade or so.

“The process of selling a business is often far more intensive and complicated than most business owners anticipate,” says Weihs. What many may not realize is that a minimum of two to four years of careful planning is needed to execute a successful deal. “You need to look at everything — from taxes, to structuring the sale correctly, and considering your ongoing role in the business,” he says.

Through working with your private client advisor team, accountants, M&A and trust and estate specialists, you can take the steps to transition your company to new owners while reaping the benefits of all the hard work you’ve put into your business. To get started, review the five main stages of the sale process, outlined below, which provides considerations for both your company and family.

1 When you’re ready to do it

In formulating your succession strategy, it’s important to consider your personal and business goals. Although many business owners envision passing the company to family members, children often aren’t interested in taking over, or there are complexities around dividing ownership among multiple children.

Additionally, before the sales process starts, make sure your financial documents are at least reviewed if not audited, as well as accessible. “It's extraordinarily difficult to sell a business based on your tax returns. Furthermore, business owners who try to sell their businesses on their own may become overwhelmed by the volume of documents that prospective buyers often demand, causing some to take their eyes off running the company,” says Weihs. “This can easily become a problem down the line when a sale includes earn-out provisions.”

On a personal level, this type of once-in-a-lifetime liquidity event demands significant attention as you consider tax implications and ways to preserve your family wealth for the next generation. For example, you may want to think about effective asset transfer strategies such as making a gift or selling a portion of your business at a discounted value to a multigenerational family trust, setting up a grantor retained annuity trust, or transferring company stock into a charitable remainder trust. “It’s never too early to begin estate planning — sometimes even when the business is created,” says Javier Romero, Managing Director, Wealth Strategist, Bank of America Private Bank.  “But effectuating transfers well in advance of a sale — before one is even contemplated — is key to optimizing available tax savings to avoid leaving any money on the table,” Romero says.  Your private client advisor team can help you determine how to make appropriate transfers and how much liquidity and income you’ll need to support your lifestyle after the transition.

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2 Structuring the deal

There are countless ways to structure a sale, each of which may have different implications for your business and your financial future. Will you sell your equity or just the assets of the company? Will you receive cash, stock, a note, or a combination? If some of your payout will be in equity, will the stock be restricted and when will you be allowed to sell it? “One attractive option in certain situations may be for you to retain ownership of the real estate and then lease it back to the buyer, who would acquire the operations of the business,” says Weihs. “This would provide you with income from the cash flow from a long-term lease and allow you to invest the proceeds from the sale of the business for growth.”

The business also needs a qualified appraisal. “An appraisal can be a reality check for business owners to ensure that their view of their company’s value matches what the market thinks it’s worth,” says Weihs.

Also consider what, if any, role you may want to assume in the company after the transition. You might stay on as a consultant or sever ties altogether. Some former business owners enjoy angel investing and/or putting their experience in a particular industry to use, notes Weihs. “For example, a young company might find it very valuable to have you — and your knowledge — on their board of directors,” he says.

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3 Vetting the offers

Even when you’re no longer holding the reins of your company, you still want it to thrive, so consider whether prospective buyers have sufficient knowledge and experience in your industry. In addition to price, make sure all terms of the deal are clear, including earn outs, lockups and non-competes. Finally, remediate any potential legal impediments such as not holding a title to all assets or not securing intellectual property.

Once you begin receiving offers, discuss with your wealth management team whether the proposed sale price supports your long-term plans, and how you might reinvest the assets from the sale.

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4 Nearing the close

Once you’ve settled on a buyer, your external team will guide you on the structure, obstacles, and critical deal terms. They will help ensure compliance with regulatory requirements, and carefully review closing documents. You’ll also need to have your communication plan ready for key stakeholders, employees, and clients.

On the personal side, make sure your lawyer, accountant and private client advisor have all the information they need to develop your post-sale investment plan and assess your long-term cash needs and philanthropic goals. “Most business owners’ financial assets and income are tied to their business,” says Weihs. “It’s important to plan for the transition from being entirely invested in the company to having mostly liquid assets.” Given the new demands of managing those assets, he suggests that some sellers may want to think about setting up a formalized family office.

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5 After the sale

In the wake of the closing, you’ll likely still have paperwork to handle, as your team sets up the process for tracking earn-outs and non-competes, creating post-closing statements, distribution plans and more. You’ll also want to give your post-ownership plan a test drive. “With the increase in wealth comes a world of new considerations,” says Romero.  “It’s not just the oversight of different or liquid assets and sources of income but also the long-term implications of a changed lifestyle.  Educating your family to become responsible stewards of wealth is an involved process, which is unique to all the individuals involved.”

Selling your company can be quite complex. Having the right team supporting you can make the process easier and more lucrative. The specialists at Bank of America can provide holistic expert planning and advice for business succession and sale based on a deep understanding of what drives the value of private businesses, and what issues are important to business owners and their families. 

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