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Six Personal Considerations Before Selling a Business

Presented by: Mike Ash, Regional President, Greater Indiana

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Six Keys to a Successful Sale

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Business decisions are often intertwined with the impact they’ll have on the family, and business owners must understand the dynamics and value drivers of both—as well as how they overlap. It’s a strategic benefit to have a team of professionals who understand the valuation aspect of selling a business, in addition to having wealth expertise, during all stages of your business sale. This is especially true if you can find a team that can tailor its recommendations based on your goals and needs.

There are several personal and professional questions you may consider prior to selling your business, including:

1. What do you need from the sale?

Many business owners intend to fund retirement from the sale of their business, and they’re accustomed to cash flow from their day-to-day business activities. It may, therefore, be important to think about what after-tax proceeds are necessary to support your future needs.

A key variable for this analysis is understanding what your business is worth. An M&A advisor who understands the market and your industry may be best suited to help understand your valuation along with helping to evaluate strategic alternatives for the business. A third-party valuation specialist (many accounting firms have these groups) may also provide a market valuation, and these types of reports are often used for wealth planning purposes ahead of a formal sale process.

2. How does the sale fit into your estate plan?

Tax and estate planning can be important topics to think through, and wealth transfer strategies may provide opportunities to save on both income and estate taxes.

Transferring ownership interest to family members, trusts or other entities before the sale may help you take advantage of allowable valuation discounts and can reduce transfer taxes later. Transfers such as these are commonly weighed against future needs and often considered nine to twelve months before any sale of the business, if not two to three years prior.

“In my experience, the most successful transitions occur when the planning starts, long before the owner has any serious intention of leaving the business,” says Troy Farmer, Regional Director, Wealth Planning at Fifth Third Bank. “Early strategic planning that coordinates both income tax planning as well as estate transfer tax planning can increase the eventual value of a business while minimizing tax impacts. It can help ensure that the owner can sell to their preferred buyers. And it can help them achieve their financial goals after the sale.”

3. What are your charitable intentions?

If you have charitable intent, strategic charitable giving can provide additional opportunities for tax savings. For instance, a charitable tax deduction in the same year that you sell your business may help offset the gains you incur.

Depending on the type of business entity and the individual’s tax and cash flow circumstances, business owners might consider donating shares of the business to a charity, donating cash from the sales of the business, establishing a charitable trust that provides a lifetime income stream, or creating a donor advised fund or a private foundation that can be used to distribute charitable contributions in the future.

4. What does the sale mean for you and your family?

As a business owner, you may have devoted your life to the business—growing it into a successful organization. Are you ready for what will be a major change? Have you determined what the sale will mean for children who may have been involved or planned to be involved in the business? Will an increase in wealth affect the family’s values and governance? How does the business owner educate their descendants on handling wealth? You may consider how your dynamic may change and grow from the event.

5. Is your business handling any of your personal affairs?

Owners may have business expenses that were handled through the business, but that serve both business and personal purposes. Consider, for instance, a vehicle purchase. Once you sell the business, those expenses will fall to you again and the personal assistance will end—and these factors should be a part of the financial modeling for the sale.

“Evaluating desired cash flow post-sale will provide an estimate of the assets the business owner will need to achieve his or her goals and the amount of proceeds needed from the sale,” says Farmer. “That cash flow should account for personal expenses previously paid by the business as well as future expenses such as travel, a vacation home, to account for the owner’s desired lifestyle in retirement.”

Some business write-offs will become personal expenses. If your wealth is significant, you may want to consider a family office or other assistance with financial affairs.

6. Will you start another business?

What will your life look like after the dust has settled from this business sale? Are you headed into retirement, or will you put the proceeds into your next venture? What will you do with your time? Some options include devoting your time to travel, or becoming an angel investor to help the future generation of entrepreneurs start their own enterprises.

Creating an action plan can help you mentally make the transition from your current endeavor to the next stage.

As you’re considering these essential points, it’s important to have the right professionals in the early stages. That may include investment bankers, lawyers and accountants. To assemble your core team, consider looking for financial institutions that can serve as a strategic fit and bring to the table a variety of professionals who can help you determine what’s best for you, your family and your business from both a business operation and a wealth planning standpoint. Now is a great time to evaluate your options for your business and your wealth planning needs.

Fifth Third Bank can assist you with the future planning for your business and beyond by putting you in contact with team members qualified to support your specific needs.

This content is for informational purposes only and may have been derived, with permission, from a third party. While we believe it to be accurate as of the date of publication, it does not constitute the rendering of legal, accounting, tax, or investment advice or other professional services by Fifth Third Bank, National Association or any of its subsidiaries or affiliates, and it is being provided without any warranty whatsoever. Please consult with appropriate professionals related to your individual circumstances. Deposit and credit products provided by Fifth Third Bank, National Association. Member FDIC.

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