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Transition Toward Selling Your Mid-sized Business

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Lounging on sun-soaked beaches, walking down narrow cobblestone European streets, cruising the Alaskan shoreline—you’ve probably spent time dreaming of the sale of your business and the life that comes after. Perhaps you’ve been thinking of this moment from the day the business opened. And that’s a good thing. 

“You can’t plan too far ahead, but you can be too late,” says Bart Busby, director in the mergers and acquisitions group at SunTrust Robinson Humphrey. 

Here is an overview of the steps you can take to prepare your business for sale, beginning a decade in advance.

10 years out

At the 10-year mark, you’ll want to consult with a tax professional to learn about the tax implications of a sale and discuss strategies to minimize taxes.

For example, certain owners should consider transitioning from a C corporation to an S corporation. Selling shareholders in C corporations are taxed twice: One tax is on net income and another is levied on shareholders’ distributions. Selling shareholders in S corporations pay only the shareholder tax.

Busby has found that shareholders who have elected to convert to an S corporation too late, i.e. within the recognition period (historically 10 years, but currently five years), either don't receive the full tax benefit or must wait to sell the business in order to receive the full tax benefit.

If conversion is appropriate for your company, the tax benefits can be significant upon a sale.

3-5 years out

At this stage, you’ll want to determine your key advisors. In addition to the aforementioned tax professional, this group might include an attorney, financial planner, accountant and broker or investment banker.

Since proceeds from the sale of your business may provide the bulk of your retirement income, it’s critical to determine how much money you’ll need to make. Enlist the help of your advisors to evaluate how much you need for retirement and create a plan to fill the gap if your expected net proceeds from the sale don’t meet your desired retirement amount.

“Outside help can be important leading up to the sale, because you don’t want to divert your attention from running the business to running a sale process,” Busby says.

This is also an important time to clean up your financials. In particular, this means auditing your financial statements, converting to Generally Accepted Accounting Principles and minimizing any personal expenses flowing through the business, all of which will increase a buyer’s confidence in your financial statements. On the balance sheet side, owners should focus on minimizing working capital and selling off obsolete inventory.

Now is also a good time to start approaching strategic partners who may have an interest in buying the company. Employees, customers, suppliers or competitors could all be potential buyers. You can also advertise in relevant trade magazines or websites to gain exposure, or enlist an M&A advisor or investment banker to help you connect with the right audience confidentially.

1 year out

In the final stretch before the sale, Busby says four considerations reign: watching market conditions, focusing on growth opportunities, meeting your budget and preparing legal documents.

While you’re focused on the performance of the business, your advisory team should be determining the right time to sell. They’ll factor in your company’s performance, the state of the industry and the overall market.

“You can achieve a premium valuation for your company if you establish a growth story for the next investor and meet or exceed your budget during the process,” Busby says. “Buyers invest in the upside potential in your business, which you can demonstrate through a well-thought-out growth strategy and flawlessly executing against it. Hitting the budget is also essential to demonstrate that the business performs consistently, which will ease a buyer's concern about downside risk.”

Lastly, you’ll want to get your legal paperwork in order. That means making sure contracts with suppliers and customers are up to date, renegotiating or renewing any leases, and ensuring that all licenses and permits are current.

While there are many layers to selling a business, the better you plan, the more likely you are to have a successful outcome. And if you can assemble the right team from the start, your main focus will be what it’s always been: running the business. After that, it’s just a matter of what you want to do in retirement.

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.


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