Estate and Financial Planning:

Preparation Gives You Control Over When To Exit Your Business

By Thomas W. Lyons

Note: This is the second in a series of three articles on preparing for the sale of a business.  It is a summary on Mr. Lyons’ popular book, Exit Strategy: Maximizing The Value Of Your Business.

In Part One of this series, we established that selling a business is the final part of the owner’s role in building it and, with some strategic planning, owners can maximize the value of their businesses, control the timing of the sale, increase the likelihood of a smooth transition, and ultimately reach their personal financial goals. 

A significant part of the preparation stage is financial and estate planning. That process begins with some retirement goals and parameters. It is important to make sure you have enough money to support the next phase of your life, and to set personal financial objectives. Meeting with a good financial planner is the first step.

Good financial planners will take an inventory of your assets, complete a risk analysis, and develop a long-term wealth accumulation strategy. They will calculate how much in liquid assets is needed to achieve long-term retirement goals, and provide a comprehensive plan to guide you. 

The big question is: What does the business need to be worth to reach your financial goals? A business valuation can help you understand how close you are to achieving your objectives. If the value, after taxes and fees, meets your retirement objectives, then it may be a good time to exit. If not, then perhaps a new sales initiative, an acquisition, or other growth strategy may be needed for the business to increase its enterprise value to reach your financial goals. 

Selling your business before it’s capable of supplying the value needed to reach those goals can lead to frustration and disappointment. Working closely with an experienced financial planner and a knowledgeable business broker can help prevent such a bad outcome. 

An experienced trusts and estate attorney is equally important in defining and achieving your financial legacy. Among other beneficial strategies, estate planning may allow you to transfer equity on a tax-advantaged basis at the time of the sale of your business. Some common estate planning vehicles include: Wills, trusts, generation-skipping trusts, GRATs, life insurance trusts, and family limited partnerships, among others.

In addition to a financial legacy, the estate planning process may include writing an ethical will. An ethical will is a supplemental, non-binding, non-legal document that you prepare yourself. It is a tradition in which a person passes on personal values, beliefs, blessings and advice to relatives of future generations. Ethical wills explain your wishes, and can convey family history, stories and memories, values, insights to life and special wisdom among other information you may wish include.

It’s important to create a close working relationship with your advisory team. To achieve the highest level of professional sales representation and receive maximum financial benefits for the seller, the team for selling a middle market business should include the following: Business broker, financial planner, trust and estate attorney, accountant (CPA), and a transaction attorney.

Quarterbacked by the business broker, your team will be critical to getting the professional representation necessary to negotiate a price that meets all your financial objectives.

It’s important to insure your CPA and the transaction attorney are experienced in mergers and acquisitions. It is appropriate to ask them about their past mergers and acquisitions experience. A good business broker can help ask the questions that will lead to a high level of professional service from your advisors.

With proper planning, business owners can control when and how to sell the business. With an effective exit strategy, an owner can sell when he or she has achieved personal financial and estate planning objectives, and assess proposals with increased discernment. In short, the seller will be in a strong negotiating position.

Being prepared with an effective exit strategy can result in a higher price for the business, minimize tax consequences, protect employees and family, and empower the seller to control retirement issues in an orderly fashion.

With financial and estate planning issues resolved, it is now time to put the business on the market. The third of this three-part series will explain the process of selling a business, including identifying potential buyers, marketing the business, and negotiating a successful closing.

Thomas W. Lyons is founder and principal partner of Faelon Business Brokers, a Minneapolis-based mergers and acquisitions advisory firm. Mr. Lyons is author of Exit Strategy: Maximizing The Value Of Your Business and conducts seminars based on the book for business owners and advisors. For 35 years, Mr. Lyons has owned, operated, bought and sold businesses; for the past 25 years, he has advised and represented owners in buying, selling and planning for business exit strategies.  He is also the host of Today’s Business Radio.com and can be heard on 830 WCCO at 11:00 a.m. on Saturdays.

More information and the book can be found at www.faelon.com.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.