Getting Ready to Sell your Business

While selling a privately-held business can be a time-consuming, complicated, and emotional process, the personal and financial rewards can be profound for a business owner.  The key ingredient for successfully navigating the business sale process is to start planning well in advance.  Selling a business can be extremely stressful for the business owner, and many business owners experience seller’s remorse after the transaction is completed. Even if a business owner does not anticipate selling the business for several years, laying the right planning foundation can help maximize the selling price and avoid headaches and stress down the road.

Keep the End Goal in Mind.  Well before immersing themselves in the complex intricacies of the business monetization process, business owners need a deep understanding of what their post-sale personal financial planning needs and goals are and if a business monetization can get actually them there.  Ideally, a business sale would result in enough money to A) replace income previously provided to the business owner by the business; B) provide for a financial safety net in the event of unexpected financial developments; and C) fund aspirational goals like philanthropy, family wealth transfers or starting a new business. 

financial planning for selling a business

In the personal financial plan, it’s best to project a range of expected values for various potential exit options (cash sale, recapitalization, or other monetization alternatives) on an after-tax, after-fee basis, then analyze how the proceeds of the sale would perform over time under a range of projected market returns to see which goals can be funded with confidence and which goals are less likely. The plan should address various potential risks and a range of outcomes with regards to market returns, spending, risk tolerance and taxes.

Get your Ducks in a Row. By planning well in advance and getting organized, a business owner has the greatest potential to maximize the business sale price.  If a business owner starts planning for a sale too late, a huge opportunity to add value to the business may be missed. Building out the management team so that the company is not overly reliant on the business owner will make prospective buyers more comfortable. If the business owner can go on a spontaneous long-term vacation without negatively affecting the business, then the business is likely getting closer to being ready for a sale.

Get your Team on Board with Business Planning. Since a business sale can take over a year, it would be disruptive to operations and morale if customers, suppliers and employees found out you were doing business sale planning. However, you’ll likely want some key members of management to help you effectively plan and execute the sale, preferable they’ll sign non-disclosure or confidentiality agreements as well. Ensuring that key employees can be retained and properly incentivized through employment contracts and perhaps business sale bonuses and/or stock options would make the company more attractive to an outside buyer, get the company ready for the sale and avoid potential last minute hold-ups from key employees derailing a sale. Any prospective buyer is going to want to avoid key employees leaving or competing with the new owner.

Many small businesses have sales departments that are highly reliant on a few key individuals or a few large clients – “institutionalizing” the company’s sales process can make the company more valuable. Ideally, the customer base would be adequately diversified, with signed contracts from major customers. Developing operations manuals and employee manuals can help systemize operations.

Polish up the Financials and Legals for a Business Sale. Organizing the company’s documents and getting the company’s financials audited by a recognized accounting firm would also be beneficial. A solid CFO/controller in place and reliable financial statements can help give buyers a good impression and avoid due diligence speed bumps later in the sale process. As well, your internal financial team will need to implement a systemic shift from trying to minimize accounting profitability to lower taxes, to maximizing profitability to make the company more attractive to buyers. Some legal structures are more optimal for a sale than others, so business owners should evaluate any potential changes early.

Improving Operations for a Business Sale. This is also the team to examine different ways to improve operational efficiency. Tidying up non-core business assets, like company vacation homes and cars, addressing family members collecting above market salaries, examining inventory levels and equipment costs, implementing heightened cost and expense controls, and eliminating non-core business lines might make the company more attractive to buyers. Any business vulnerabilities should be addressed head on. It may make sense to separate operations into different business lines. This will make your business easier to understand and evaluate, potentially resulting in a higher sales price. You’ll also want to investigate the valuation metrics buyers in your particular industry use to evaluate companies. Some companies will focus on profits, while others may put more emphasis on cash flow, book value or revenue. Knowing which metrics to focus on will allow you to maximize a sales price as you make operation efficiency improvements.

Some business owners unfortunately underestimate the importance of branding when selling their company. What comes up when your company is typed in Google? Are there lawsuits or negative headlines that come up? Does the company’s logo, website and social media accounts put the company’s best digital foot forward? What impression would a buyer have if they walked into the company’s office or warehouse? These are all areas a business owner should address when planning to sell the business.

View your Business from a Buyer’s Perspective.  While a valuation or business appraisal report from a reputable accounting firm, business broker or investment banker is a good starting point for building the case for the best price a business owner could get, a business owner selling his or her business must develop a convincing justification for a sale price from both strategic and financial buyers’ perspectives.  Understand why a strategic buyer might want your business and try to quantify the potential synergies. You’ll want to be able to articulate the company’s long-term vision for growth, opportunities in the marketplace and expected profitability.  

Also, understand that buyers have deal preferences in which you may be opposed.  Buyers typically prefer asset purchases to avoid potential liabilities and get a tax cost basis equal to the purchase price, while sellers prefer stock sales to get capital gains treatment and avoid double taxation. A higher cost basis through an asset purchase will generally allow for lower tax liability down the road. Moreover, the buyer will want to know why you’re selling, so you’ll have to develop and articulate a cogent, coherent reason for planning to sell your business.

Sell a Business Wealth Management Tips

Identify and address any potential red flags such as high customer concentration or changes in performance or legal claims.  When due diligence by a buyer is conducted, be upfront about skeletons in the closet and potential problem areas. As you move closer toward a sale, you’ll want to start to build realistic and supportable long-term financial projections with your team.

Develop a Buyers List. As you improve operations to add value for an eventual sale, you’ll want to start developing a list of companies that would want to buy your company. These companies could want to buy the business to eliminate a competitor, achieve operational efficiencies, achieve synergies or for other strategic reasons. You’ll continue to develop and refine the universe of buyers as you build out your advisory team.

Build the Team.  Often times, business owners are inexperienced in the process of selling a business and negotiate with buyers with much more transactional experience, so having the right team for a business monetization can have a tremendous impact on the success of the transaction.  Not hiring outside advisors to avoid fees is usually fooling, since the right team of advisors can help maximize the selling price by providing objective advice, understanding your wishes and goals, developing the optimal strategy, and advocating and negotiating the best deal on your behalf.

The team’s CPA, investment banker, corporate attorney, trusts and estates attorney, and financial advisor all bring different skill sets and motivations to selling the company, so it’s best to choose each wisely.  When it comes to the legal structure, the in-house counsel can add a lot of value to the selling process since he or she will have the extensive institutional knowledge, while a mergers and acquisitions attorney brings specialized skills.  Having both on the team can be very helpful.

Another advantage of building an outside team of advisors is that business sale planning can very time-consuming, stressful and distracting. The last thing you want is business performance to erode and derail the deal, so having management focused on business results instead of the transaction is preferable.

Strategize Potential Structures and Your Participation. As the business owner builds the business sale transaction team, they can help the business owner understand the business, tax, legal and financial implications of various selling options. It’s important to think through in detail post-sale participation in the company for the owner. Will you participate in management after the sale? How much control will you give up in the company? Will you have a board seat? Many owners are eventually ousted by the board, since they don’t have majority ownership anymore.

Tax Planning for a Business Sale. On the tax side, there are many structures, strategies, and techniques that the business owner can benefit from, but planning should start way in advance with your team. Some of these strategies include: using Qualified Small Business Stock (QSBS) to eliminate up to $10 million of capital gains taxes for some C corporations, executing an installment sale to save taxes by using lower bracket levels over time instead of higher brackets in a lump sum sale, investing in an Qualified Opportunity Zone Fund (QOF) to reduce capital gains or maximizing charitable impact with a charitable remainder trust (CRT). You’ll want to engage with your estate attorney to think through various structures to avoid taxes, minimize liability, side-step frivolous lawsuits, avoid the negative affects of a potential divorce, take care of your heirs and avoid probate.

Sale Structures and Financial Planning. In evaluating these business sale structures, it’s important to work with your financial planner or wealth manager to review each structure in the context of your personal financial planning. How will taking cash versus an earn out affect your long-term financial plan? Do you have the risk tolerance to hold a concentrated stock position long-term post sale? Can you confidently sustain your lifestyle holding a risky note from the transaction? How will you plan to deal with the risks and pitfalls of a sudden financial windfall? For more on financial planning tips on managing a financial windfall, click here.

Visualize your Post-Monetization life.  In all likelihood, the mental wiring for many business owners is programmed to run a business, not exit a business.  The exit process can be hard, but waking up every day and not running a business for many successful business owners could be even more difficult.  The importance of actively thinking about potential post-business exit activities and interests well before the actual business monetization should not be overlooked. You’ll know you’re probably emotionally ready to sell your business and enjoy your post business sale life when you view the process as planning “towards” the post-sale life and not planning “for” the business sale.

Be Aware of Potential Landmines.  Having a backup plan in case the planned transaction does not close could save the day.  If a business sale fails completely, the business owner should ideally have a business strategy in place to continue running the business. 

Without proper planning, a business owner could pay too much in estate or capital gains taxes, leave wealth on the table or at worst, fail to realize their personal financial goals.  Again, the key is planning far in advance. 


David Flores Wilson, CFP®, CFA, CDFA®, CCFC is a New York City-based CERTIFIED FINANCIAL PLANNER™ Practitioner & Wealth Advisor at Watts Capital.  He can be reached at