Selling Your Business: A Six-Step Plan

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November 25, 2014

Selling a business creates a unique liquidity event that can have a huge financial impact on your lifestyle, taxes, cash flow and wealth transfer plans. To help you potentially maximize the value of the deal, while simultaneously attempting to keep your assets protected, put a game plan in place long before any papers are signed.


“One of the more important things you can do before you even start looking for a buyer is to prepare well in advance,” says Kenan Aksoz, Head of U.S. Bank’s Business Owner Advisory Services. “Ideally, you would start this process three or more years before your exit.”


Starting in advance gives you the time you need to get the business in order and be ready just in case a quick sale opportunity arises.

“For example, three years may be your time frame for selling, but you also have to consider the market’s time frame,” Aksoz says. “If you haven’t been preparing and a lucrative offer comes along, you might not be able to take it.”

Tab 2

November 25, 2014

A Sale in Six Steps

Consider taking the following steps to prepare for the sale of your business:


1. Build a sales strategy with your wealth advisor.

“Advisors that specialize in this area, such as Business Owner Advisory Services of U.S. Bank Wealth Management, can help you potentially maximize both the financial and emotional value of the business. Specialists can help you define a strategy that is in alignment with your family’s goals and objectives,” Aksoz says. “Plus, a well-chosen advisor can help you assemble the right team to sell your business. An unbiased advisor will guide you throughout the process, from interviewing the investment bankers to bringing together the right combination of legal, tax and business experts to the deal,” Aksoz says.


2. Make a tax plan.

Selling a business can have a huge impact on your taxes, notes Dave Rau, Trust Tax Manager and Vice President for U.S. Bank. “If gain on the sale is long-term, a federal tax rate of up to 23.8 percent could be applied to the gain. Additional state income taxes, where applicable, will also be imposed on this gain. Conducting tax planning before you sell may help you maximize deductions and avoid penalties,” Rau says. 

He suggests working with a tax advisor before you complete the sale to establish your income expectations for the year, calculate your anticipated taxes based on projected gains, and determine if any estimated tax payments are required along with the timing of any year end payments. Consider the possibility of using an installment sale to delay reporting a portion of the gain and tax liability from the sale until future years. Remember that the value you receive from your business will also be included in your estate upon your death. Federal estate tax rates of up to 40 percent may apply. In some states additional estate or inheritance taxes may also apply.


3. Consider selling your business over time.

“To offset the tax impact, consider selling the business on an installment basis,” Rau says. This involves collecting payments over several years, which allows you to recognize gains over time and potentially avoid higher tax brackets. “But only do this if you are confident the buyer will be able to meet their future payment obligations,” he suggests.


4. Clean up your financials.

Before talking to buyers, eliminate financial items that aren’t directly related to operating expenses, says Lee Sorenson, Senior Wealth Planner for The Private Client Reserve of U.S. Bank. This can include insurance or salaries for non-working family members, as well as cars, expense accounts and any other discretionary expenses you don’t want to have to explain. “If it’s not something the buyer would want to pay for, it shouldn’t be there,” Sorenson says.

Tab 3

November 25, 2014

5. Review your financials with an accountant.

There are different levels of financial reviews to consider, each of which offers varying degrees of accountability and supervision:


  • A compilation is the least formal type of assessment. It involves a CPA who prepares financial statements based on information the business owner provides. The CPA won’t offer any opinions on the data and will assume everything provided is accurate. A compilation is useful to evaluate internal goals, but it won’t provide the validation a buyer will want.
  • A review is a more in-depth analysis of the financial statements in which a CPA provides an opinion of the company’s financial status and identifies potential issues. A review provides “limited assurance” that nothing serious came to the accountant’s attention. 
  • An audit is the most formal assessment, in which the CPA conducts a critical review of management and an independent verification of financial information. “An audit provides the highest level of assurance that the financials are in line with Generally Accepted Accounting Practices and may be the best option for owners who are preparing to sell their business,” Sorenson says.

6. Diversify your customer base.

As part of the business review process, examine all of your vendor contracts, customer contracts, license agreements, buy/sell agreements and any other arrangements that might impact the sale of the business.


“You want to know whether any of your current business terms will hurt or increase value in the eyes of the buyer,” Aksoz says. “Also, look for red flags, such as a significant portion of your sales going to one or two customers. This may be viewed as risky to a buyer, especially if those customers have strong personal relationships with the current owner.”


Aksoz believes it is important to think about what you can do to make yourself less relevant to the sales process.


These specialists agree that being prepared and taking a few steps in advance of a business opportunity may help ensure you are ready to close the sale when an opportunity arises—and get the best deal for your business.


For more on taxes, read "Tax Planning Considerations for 2014."


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Wealth Transfer