The Complete ‘Selling a Business’ Checklist: For Our No-Stone-Left-Unturned Folks

Step 1: Get your personal financial house in order with an eye toward the future.

After years of focusing on building a business, now’s the time to pause and audit your personal financial life. What assets do you have? Liabilities? What kind of income are you accustomed to and how do you spend it?

Approach these questions with the same discipline and no B.S. attitude that’s already gotten you this far. Then, map these items out–(we use a “Monument Asset Map”)–so you can see the big picture clearly without overwhelming the senses.

What are your post-sale plans?

Think about what’s important to you–what do you want your life to look like after your business sale? The lives of those you love? Do you have any charitable organizations or interests that you’d like to designate funds for? Try to answer the big question here, “What’s the money for?” This can help you better understand what YOU need from a business sale to meet your objectives and make decisions about specific actions to take pre-sale (more on that below).

Get help.

Work with an advisor who can help you identify and prioritize your goals and objectives while helping you connect the financial details to your big picture. They can complete the audit for you and ensure you have the right team assembled to ensure a smooth transition (CPA, Trust and Estate Attorney, etc.).

Bottom line: An advisor can help you translate your success in running a business to success in meeting your needs post-sale, ensuring you understand your options and can confidently make decisions about your newfound wealth. This is CRUCIAL for any business owner thinking about a sale.

You with us so far?

Step 2: Engage a Merger & Acquisitions (M&A) advisor.

An M&A Advisor will guide you through the process from start to finish. You’re THE expert on your business and that’s how it should be…you don’t need to waste time and energy trying to figure out the process of selling your business on your own.

Get an appraisal.

There are many different deal structures–an M&A Advisor will listen to what’s important to you in terms of your involvement with the business post-sale and your personal financial needs to help you make sense of the options. They will also help you obtain a professional appraisal–you can’t know if you’re ready to sell if you don’t know what a buyer would pay for it. Remove the anxiety of the unknown with a seasoned pro who can help you extract the most value from your exit.

It will also help in planning for your post-sale life. Part of the decision to sell should be grounded in knowing that the proceeds will be enough to fund your lifestyle.  Pre-sale planning, like that done in the Monument Private Wealth Design process, will determine the after-tax amount needed to fund a long-term investment portfolio that accomplishes your post-sale lifestyle objectives.

If the company appraises for that amount or higher, you will have an advantage in negotiating with any buyer and will set your “no-go sale price.”  It’s also helpful in determining if any “earn-out” is worth accepting or passing on. If the sale proceeds are higher than the amount needed to fund a post-sale portfolio, you may determine that you don’t want to keep working to get the additional earn-out money.

Of course, knowing that the appraised value doesn’t meet the proceeds you need is valuable too. In this case, options include revising your post-sale lifestyle downward or postponing the sale, and continuing to build the value of the business higher for a future sale.

Put your company in a position to sell.

An M&A Advisor will help you get the company in the best position possible to sell by:

• Cleaning up the financials
• Conducting a business valuation
• Identifying and selecting an M&A attorney
• Creating models that can show you what you can expect from various purchase scenarios
• Creating a deck to share with potential purchasers that outlines everything they need to know about your business, the strategic synergies of an acquisition, key competitive
• environment dynamics, financial snapshots, and more.
• Identifying potential purchasers and coordinating due diligence meetings
• Charting a plan that allows you to keep focused on your annual growth rate and profit margins will be critical for a top valuation–a buyer is paying for growth!
• Making sure your brand is marketable
• Thinking about key employees and other “assets” that might not appear on the balance sheet

Step 3: Tune up your estate plan.

Estate documents are never something you should set and then forget, especially when it comes to a business sale. Depending on your answers to the question “What’s the money for?”, there may be opportunities to update your estate plan BEFORE a sale occurs.

For example, if there’s a goal of creating multi-generational wealth and the total business proceeds aren’t needed to sustain your lifestyle, you may want to transfer a portion of non-voting shares to an irrevocable trust that benefits the next generation of your family before any mention of a sale. This allows wealth from the business sale to accumulate inside of a trust, which protects the assets from the claims of creditors and the risk of children spending more than you intend.

An irrevocable trust will also allow wealth to accumulate for the next generation OUTSIDE of your estate–meaning it won’t be subject to estate taxes when you pass away if your taxable estate exceeds the lifetime gift and estate tax exemption amount (currently $11.7M for individuals and $23.4M for married couples).

This requires careful planning with a Trust and Estate Attorney in conjunction with your advisor as you may need to re-write your estate documents to account for this new liquidity, even if there aren’t any trusts to fund pre-sale. Life evolves, and you may wish to adjust provisions in your existing documents to be reflective of your new or soon-to-be liquid net worth. Your team of professionals can help you break down the overwhelming complexity and make sure your assets end up in the right buckets in line with your legacy desires.

Step 4: Plan ahead for taxes!

Get a handle on your cost basis so that you can project the amount of cash you’ll be left with post-sale. More than likely proceeds above your cost basis will be taxed as long-term capital gains. But as with anything, your taxes will be highly dependent on your personal circumstances and the details of the transaction. This is helpful with creating realistic plans for life post-sale that is customized to you and proactively address any liabilities

Take time to plan.

Tax minimization strategies take time to plan–if you’re interested in ways to mitigate taxes, such as large charitable donations, talk to your team of advisors (your CPA and wealth advisor, specifically) early in the process about your options.

Having enough time to plan ensures clear communication and decisions that you feel comfortable with and also provides for the most amount of options.  The more time to plan before a sale the better–being rushed into last-minute tax strategy decisions is one of the biggest challenges we encounter and usually results in no action being taken, which is not optimal.

Have a plan to set aside cash from the proceeds to pay your tax bill–liquidity is the key. Keep this safe in a money market fund or other cash-equivalents.

Step 5: Execute your plan with your team of advisors.

The most important personal question you need to answer when determining your exit strategy is, “What’s the money for?” Money, unlike art which is something that is to be admired, is a tool to be used to achieve your goals and objectives. When people treat it like art, they tend to watch it and look at it in a way that is counter-productive and limits its overall usefulness.

The answer to this question provides the framework for creating a blueprint for the path forward.

This blueprint includes:

• The types of accounts you need to open to receive the sale proceeds, how they should be titled, and how they will be funded according to your goals and objectives and the estate plan that supports them.
• A sense of how your needs will be met–will you be living off of the portfolio? Pursuing interests you’ve put on hold? What you need from your transaction proceeds–and how to invest them–is highly dependent on YOUR unique circumstances. Your plan will be (and should be) different from everybody else’s.
• A plan for ensuring taxes are paid in a timely fashion.
  Most importantly–take a breath and enjoy what years of hard work and determination have afforded you! Have a plan for things you want to enjoy post-transaction–new hobbies, travel, and time with friends and family.

While this ‘selling a business’ checklist might answer some of your questions, there are bound to be many others.