Your business is likely one of your largest assets, playing an important role in your future, from your retirement plans to your legacy. When it’s time to pass the torch through a sale, succession or merger, a sound exit strategy can help you maximize your business’s value while minimizing taxes. Starting the planning process early can help ensure a smooth transition and protect the business, employees, the community and future owners.

When should you start planning for a business exit?

Exit planning should begin well before you step away. The earlier you start, the more control you’ll have over the process and the more time you’ll have to avoid common mistakes and resolve any potential issues. Preparing for the sale of a business can take several years, but your exact timeline will depend largely on your exit path:

  • If you are selling your business to a third party such as a private equity investor or another company, finalizing the transaction may take several months or longer once you find a buyer.
  • If you have an internal successor lined up, transferring ownership may take longer, potentially even years, if the new buyer pursues an installment sale.

Maximizing business value before a sale

To help ensure your business commands the highest possible valuation when you sell, focus on making day-to-day operations self-sustainable and consider strategic improvements across several areas as you prepare for the sale, including:

  • Operations. Upgrade technology, strengthen human resource management, refine inventory and asset control, and improve product and service quality control.
  • Revenue. Expand your customer base to reduce any customer concentration, invest in branding and implement sales growth strategies.
  • Risk mitigation. Diversify your supplier base and build strong customer relationships to ensure business stability.
  • Leadership and team development. Train employees and establish a leadership succession plan.
  • Efficiency. Streamline processes and eliminate redundancies.

Your business might fetch a higher price if you sell during a booming market, but trying to time the sale to coincide with a favorable market can be difficult. Instead, focus on continuing to build a strong business so that when market opportunities arise, you’ll feel confident in the value of your company and the proceeds you’ll get for it.

Understanding the financial implications

A business sale is likely to be one of the most significant financial events of your life. A financial advisor can play a key role in helping you plan for and manage the proceeds of that sale. That planning work will start well before the exit process as you consider your estate and retirement goals and the role the sale of your business will play in meeting those goals.

Your financial advisor, your trust and estate attorney and your tax professional can help you manage the tax implications of the sale. That management may include considering estate planning tools such as trusts to help minimize estate and capital gains taxes. How you structure the sale of your business also can make a difference in the amount of tax you might owe.

A business exit is a team sport and often involves many important and often complex facets. By working with an experienced team of professionals, including a business broker, you can be thoughtful and deliberate in executing a strategy — including an employee stock ownership plan — that may result in considerable tax advantages for you and the people and causes you care about.

Legal considerations in exit strategies

If your exit plan involves transferring ownership to a business partner, ensure you have in place proper legal documents, including partnership agreements and buy-sell agreements that outline how the business will change hands when you exit.

If you plan to sell your business to an outsider, buyers will likely look closely at your financial records, contracts and operational details. Having good documentation in place strengthens your position and can help speed up the sale process. Ensure that you comply with local, state and federal laws and regulations, including tax laws, employment laws and regulations specific to your industry.

A business exit is one of the most significant financial events an owner will face. By planning early and working with the appropriate business owner advisors, you can secure your financial future and leave a legacy for your loved ones. Additionally, working with the appropriate professionals can help you adapt if your goals or circumstances shift.

At a glance

  • Begin exit planning as soon as possible to ensure proper implementation and provide for contingencies.
  • Maximize value before a sale by streamlining operations, focusing on growth and mitigating risk.
  • Use tools such as trusts, structured buyouts and installment sales to reduce tax liabilities.

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ÃÛ¶¹ÊÓƵ Wealth Way is an approach incorporating Liquidity. Longevity. Legacy. strategies that ÃÛ¶¹ÊÓƵ Financial Services Inc. and our Financial Advisors can use to assist clients in exploring and pursuing their wealth management needs and goals over different time frames. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved. All investments involve the risk of loss, including the risk of loss of the entire investment. Time frames may vary. Strategies are subject to individual client goals, objectives and suitability.

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