Editor's note: This is the second of two articles on business succession planning.
In our last article ("Are you and your business ready for a sale?," North Bay Business Journal, May 19, 2014) we discussed the science behind being prepared to sell your business, addressing what to consider from a practical perspective -- before getting an offer. But there’s another important aspect of every business sale, and it’s often overlooked: the emotional, personal side.
Whether your business was passed down through generations or you built it up on your own, you’re connected to it both emotionally and, with cash flows so closely related, logistically. So how can you put yourself in the best personal and emotional position possible before a buyer comes knocking with a great offer?
Having worked with countless business owners wishing to sell their company, we’ve seen it done many ways. Too often, though, it’s a reactive response to an offer that sounds “too good to pass up,” catching the owner off guard and forcing him or her to negotiate from a place of weakness. Once the process starts, owners are often ill-prepared and in many cases limited in their ability to fully understand what the deal means to them financially and from a tax standpoint, let alone emotionally.
Well-prepared business owners and their spouses have taken time to create a thoughtful financial plan that anticipates their personal goals, what those goals will cost, and what strategies they can employ to help reduce future estate and income tax prior to contemplating a potential sale. If you know how much of the proceeds from a potential sale you need and how much in after-tax proceeds you may likely receive from a transaction, there are several effective methods of transferring wealth prior to the sale that can significantly reduce your estate tax burden.
[caption id="attachment_92509" align="alignleft" width="202"] Jay Silverstein[/caption]
The further in advance of a transaction these strategies are employed, the less risky they are, says Jay Silverstein, a principal with the accounting firm Moss Adams, LLP, who specializes in working with business owners contemplating a transaction. “A comprehensive planning process helps you and your spouse anticipate what your lives may look like after the sale of the business,” he says. “You can mentally prepare for the release of a business you’ve built and nurtured.”
[caption id="attachment_92512" align="alignright" width="173"] Lois Lang[/caption]
What will it feel like to hand over control? How can you begin preparing for this next phase of your life? What will you and your spouse do with your new freedom? “Don’t underestimate the need to talk through these questions together,” says Lois Lang, a partner at Evolve Partner Group, which specializes in business succession planning. “Pick up a journal or your iPad and start scribbling down your thoughts.”
Another advantage to thoughtful planning is its ability to help you anticipate expenses you may not have considered -- expenses that will likely fall on your shoulders. It’s not uncommon for a business owner to rely on his or her CFO or controller to oversee personal real estate holdings, handle personal bookkeeping, and generally act as a personal CFO. Once the company is sold, however, these resources often go away, but the need doesn’t. Having a plan for how to handle your ongoing personal service needs is critical in the emotional and financial transition.