Selling a business is a massive undertaking, made all the more complex because you can’t stop running your company in the meantime. We’ve assembled the timeline below with some milestones and suggested dates to think through as you sell your business, with an eye toward meeting your financial and non-financial goals. Think of these as tasks to tackle in advance of a sale.

Before you begin the process, you need to know what those goals are. Your Private Wealth Advisor can help you think through what you really want, including your standard of living, what you want to give to your heirs and even how you want your business to be run after you’re no longer involved with it. Very few sales come without compromises or trade-offs, and knowing precisely what you want is invaluable as you make those decisions.

 

• If you’re planning on a qualified small business stock (QSBS) tax exclusion, start early. In order for the equity in your business to qualify for a QSBS tax exclusion, which may provide owners of eligible companies with a tax exclusion for some (or all) of the gains realized on the sale of equity, the business must be organized as a C-corporation and you must have owned the equity for at least five years. There are other requirements to consider. Eligibility for the QSBS exclusion can be complex — to understand how the QSBS exclusion may apply to your situation, you should consult with your tax and legal advisors. 
  

 

• Honestly evaluate your business operations. When selling, you need to understand what will attract buyers to your company. Do you have a strong organization that can tackle daunting challenges? Perhaps you’ve perfected a new technology that has broad applications. You’ll also need to think through what you’re contributing to the company. If your organization is too reliant on your capabilities, it’s going to struggle to find a good price — buyers will be more interested in you than your enterprise! An early and frank review can give you time to shape your business to attract the kind of buyer you want.
• Get a sense of what your company could be worth. Every industry has its own range of valuations, typically measured in multiples of revenue. That will be a broad guide for you as you seek to increase the value of your company — that is, what’s your multiple? When you look at companies trading at multiples you’d like to achieve, what are you seeing them do? What can you do to set yourself apart from low-multiple businesses?
• Assemble your team. You’ve probably already established relationships with some financial professionals — a Private Wealth Advisor and a certified public accountant (CPA), for example. However, you should engage a full team ahead of any sale, including mergers & acquisitions and trust & estate attorneys. Many consultants favor three-year contracts, so you’ll want to begin looking early, even if you intend to hire them for a shorter duration.
• If you’re going to gift shares of your company, consider doing so early. Your company may be worth less today than it will be when you begin concentrating on expanding its value. If you plan to gift equity in your company to family or friends, it probably makes sense to do so now, when the lower value will eat up less of your lifetime estate tax exemption.
  
  Keep in mind that valuations can be a double-edged sword — they’re necessary at some points, but they can expose you to audit risk. Be mindful of how and when you get your business appraised, and work with your team of financial professionals to understand its potential impacts.

 

• Understand your equity situation. Many business owners have traded equity for liquidity or services at some point. Before you put the company up for sale, you’ll need to understand who owns portions of your company and how much that could potentially cost you. In some situations, you may want to consider reorganizing your company to reduce this equity dilution. Such restructuring can take some time, so you’ll want to start the process early enough that it’s resolved before you begin seriously looking for a buyer.
• Prepare the business for sale. Pay close attention to the factors that could weigh on your business’s value. These are often industry-specific, but some factors tend to apply across the board — a gnarled balance sheet will often pull down your potential selling price, for example.
• Consider your stakeholders. If you want employees to have a special place in the post-purchase business, begin planning for that now. Giving them larger salaries and weightier titles before the sale can make them harder to reverse by the new owners, for example.
  Similarly, you’ll need to discuss what the sale might mean for family members — existing family-member employees may need to adapt to a world where they’re not related to the boss, for example. And remember that many stakeholders don’t have direct ties to your business: A change this large will likely affect your spouse and dependents. Make sure all stakeholders understand how they might be impacted and how they fit into your planning.

 

• Evaluate the market. Before you finalize your decision to sell, do a temperature check of the market. If you’re in a cyclical industry that’s caught in a slump, can you wait until things pick up? If you’ve had a setback recently, can you delay your plans until you’ve righted the ship? The work you’ve put in so far probably won’t be wasted, but you could crimp your plans with an ill-timed sale.
• Get a formal appraisal of your business. A professional, unbiased appraisal of your company is critical. Not only will it give you a strong sense of what the market will bear, but it will help keep your expectations aligned with reality. As part of this appraisal, discuss with a tax professional the kinds of taxes you’ll owe after a sale and how that will impact you. Think beyond what you’ll pocket now — your Private Wealth Advisor can help you understand how this sale could affect your wealth plan and overall estate planning.

 

• Purchasing a business is a big decision. It might take months or years for you to find a qualified buyer. Ensure you understand your time window to sell and be you’re prepared for a lengthy process.
  
• Keep an eye on your goals when evaluating offers. It can be tempting to choose the highest value offer as you evaluate your choices. However, keep your goals at the front of your mind. If you have two offers and one is materially higher but less likely to meet your non-financial goals, you might be setting yourself up for regrets later. This is especially true when you’re meeting all your financial goals under either offer — more cash is always nice, but you literally can’t buy the satisfaction that stems from meeting your intangible goals.