Dan Reiter, CFP®, CPA, CExP, CVGA
Selling a business is a complex endeavor with numerous moving pieces and legal, tax, and financial implications. Specialists in business, law, tax, and mergers and acquisitions are essential in successfully navigating the process.
The makeup of your advisory team may vary depending on your exit plan and business exit strategy. For example, if you plan to sell to a family member, you may not need a business broker. However, you may look to hire business and estate attorneys well-versed in family business transfers.
Although not exhaustive, below is a list of professionals who are often part of creating or executing a business exit plan:
Business broker or M&A specialist
Business/M&A attorney
Tax attorney or CPA
Financial advisor
Estate planning attorney
It is imperative that you identify and build your advisory team early, well before the sale process begins. This will allow you to put key components of the exit strategy and plan together beforehand. By doing so, you can significantly reduce potential stress and issues, eliminate key risks, implement necessary pre-sale tax and estate plan strategies, and maximize business value.
Sales take months and sometimes over a year to complete—typically requiring a substantial amount of an owner’s time. Putting an effectively working team in place will allow you to navigate the sale process better while continuing your day-to-day business responsibilities.
Your Advisory Team
Business Broker or M&A Specialist
In a third-party sale, a business broker or M&A specialist will help research the industry, find potential buyers, market the business, negotiate price and terms, assist the due diligence process, and facilitate closing the deal.
One of the most critical functions of a good M&A advisor is developing the strategy for marketing the business. If possible, you should work with a professional who has experience working within your industry. With industry experience, the M&A advisor is likely already aware of active strategic buyers, the level of activity in the industry, and what buyers are looking for to achieve the most favorable terms.
Business/M&A Attorney
A business or mergers and acquisitions attorney will be responsible for designing and drafting documents necessary to transfer ownership. An attorney experienced in exit planning will also be an invaluable member of the team in helping reduce risk, providing advice for deal structure, and identifying legal issues.
In internal transfers to family members or key employees in particular, the M&A attorney often takes a larger role in the design and structure of the transfer itself. Sometimes, the attorney will take a leading role in negotiations as well.
Tax Attorney or CPA
The tax attorney or CPA is a critical member of the team. It is crucial that you find a tax professional who has experience in small business succession plans and various business exit strategies.
Buyers and sellers usually have competing interests in negotiations of deal terms and agreed-upon structure from a tax perspective. Having a tax specialist in your corner well-versed in the tax structure and economics of a transaction will give you a competitive bargaining advantage.
Moreover, consider the government as a third silent partner in your deal. A tax advisor planning strategically can make recommendations to add structure to the transaction that minimizes the government’s piece of the pie. Sellers often make the mistake of placing too much emphasis on the top-line selling price itself. Ultimately, though, structuring the right deal is about maximizing the after-tax proceeds YOU get to keep.
Financial Advisor
One of the most important steps to take before you sell is to understand how much you need to sell your business before going to market. This understanding starts with having a conversation with your financial advisor to identify your personal goals and lifestyle as well as specifically quantify the financial resources required to achieve those goals.
If you determine that your current financial resources plus the value of your business today are less than what you need, you have a gap. A knowledgeable financial advisor well-versed in working with business owners can help identify the specific ways to close that gap to ensure that you know when you can confidently exit your business. Moreover, a knowledgeable financial advisor will make customized recommendations on how to manage your liquidity from the business sale to align with your goals.
Estate Planning Attorney
The estate planning process covers the design and implementation of a plan to ensure that your assets pass to whom you desire and how, minimize the cost and time associated with probate, and reduce the amount of estate taxes (or “death” taxes) due at the end of one’s life. This process requires special consideration for owners whose single largest asset is illiquid.
Working with a high-level estate attorney will also help you address any business continuity issues that exist if something were to happen to you before you sell your business. For example, who would take control of the business management and ownership if some ill would befall you as the owner? If this question is not properly addressed, it may be a key risk for your beneficiaries and other business stakeholders.
Particularly for those owners who wish to transfer their ownership in the business to family members, several strategies exist for potentially limiting estate taxes at the end of your life by passing as much of the business value outside of the estate as possible. A few examples are a spousal lifetime access trust (SLAT), irrevocable life insurance trust (ILIT), or outright gifting of shares with appropriate valuation discounts.
However, care must be taken to weigh the potential pitfalls of these strategies and others from an income tax or financial planning perspective.
A Key Role: Coordinator for Your Advisor Team
Exit planning is a tremendously complex process. No single advisor has sufficient expertise to implement all activities required. However, working with an exit planning professional who can effectively lead your exit planning team will serve to significantly simplify the process for you.
Further, roles often intersect and overlap, which adds potential confusion, duplication of efforts, and higher costs. Having one professional who coordinates the team can help to reduce the duplication of efforts and ultimately save you both time and money.
One of your professionals will often serve both as your exit planning professional and in some capacity on the team. For example, our Kansas City, MO financial advisory firm works as both the financial advisor and exit plan coordinator for our business owner clients. Ultimately, this helps keep owners keep more of their focus on managing the economics of the business and the transition process.
Discuss your situation with a financial advisor with experience in working with business owners. Schedule a 30-minute discovery call today.