Wealth management Boston

How to Sell Your Business: What to Do Before, During, and After the Sale

The time has finally come: you’re ready to sell your business. Planning for the sale of a small business may seem daunting. Perhaps you’re not sure where to begin or how to go about selling a business. To make the process as easy and profitable as possible, you’ll want to start planning early. Having time on your side can really pay off when selling a business. Whether you’re ready to retire or just move on to a new venture, here’s a primer on how to sell your business.

How to sell your business: key steps before the sale

Selling a business requires a lot of planning. As you begin the process, it’s important to focus on the step you’re in and the long-term objective. Otherwise, you may end up making short-term decisions that go against your ultimate plan. Here’s an overview of the process and post-sale considerations.

Get organized and know your numbers

The first step is to get your business financials in order. Clean up QuickBooks, prepare financial statements, projections, and ready key metrics for your industry. Understand the numbers. What is the financial position of the business? Outstanding liabilities? Relative growth in gross sales and net income? Number of customers and relative size? Alignment with your forward projections?

Again, this is why it’s best to start as early as possible, so you have time to make adjustments. Perhaps you use cash to refinance, pay down debt, or cash out minority shareholders. Even if you don’t need to make any substantive changes, messy or incomplete books can kill the deal before it even gets started. It may also be worth considering an independent audit of your financials to help give buyers confidence.

Gather your team of advisors

When selling a company, having a team of trusted advisors around you is crucial. Here’s why: chances are you haven’t sold a business before and likely won’t again. We don’t know what we don’t know…and you only have one shot to get this right.

In planning for the sale, get your team of business and personal advisors in place ahead of time. Your business advisory team may consist of: a business broker/investment banker, valuation expert, accountant, tax advisor, and transaction/M&A attorney. On the personal side, your financial advisor, estate planning attorney, and CPA/tax advisor should be involved throughout the process.

There’s a lot of complexity to consider: structure of the deal, ways to retain key employees, tax planning, cash flow planning post-close, etc., so it’s really important to work with a team of specialists that can help you navigate your options.

What’s your business worth?

Understand the real-world value of your business in the current market by working with a valuation specialist, business broker, or investment banker. When wondering how to sell your business, ask what buyers would be willing to pay today?

It may be helpful to discuss different estimated valuations under various sale structures too. For example, the valuation of the company if sold using an employee stock ownership plan (ESOP) likely wouldn’t be as high if the business was sold to a competitor. Similarly, selling a non-controlling stake in the business would be less desirable than a full acquisition.

As you and your advisory team consider the best approach in selling your company, it’s helpful to consider how deal structure can affect valuation.

Define your goals and financial needs

Before going too far down the path of exploring all the ways to sell your business, first consider your goals for the transaction. Do you want to sell 100% of the company at closing and walk away with the cash? Do you want to pass the business to family members or employees? Are you willing to keep working for 3-5 years after selling all or a portion of the business? How important is it that the brand continue? What are your cash needs?

There are a lot of ways to sell your business and attorneys can be quite creative. But there’s no sense in spending time on options that don’t align with your objectives or financial needs. So before getting wooed by complex deal structures and tempting tax-minimization strategies, take stock of your wants and needs.

In working with your personal financial advisor, discuss your plans after the sale of your company. What are your income needs? Do you have plans for a major purchase? This will help determine how much cash you need from the sale of your business and whether to consider the pros and cons of arrangements like an installment sale.

You’re in the process of selling your business, but the deal hasn’t closed yet

It usually takes between 3-12 months to close a deal. During that time, there’s a lot that can go wrong, so keep focus and be careful not to pre-spend anticipated proceeds or mentally retire before the finish line.

While an active deal is in process, it’s important for the business to operate as planned. Selling a business is time-consuming for business owners, even when they have an advisory team. But during this time, it’s essential to ensure you hit revenue projections, profitability goals, and other key financial metrics.

Here are some other tips to consider before the deal closes:

  • Get potential buyers to sign a non-disclosure agreement
  • Work with your business advisory team to make sure you’re not disclosing more than you should early in the process
  • A letter of intent (LOI) is a mostly non-binding document outlining the proposed terms of the deal. The purchase is still far from completion!
  • Time is your enemy – changes inside the business (departure of key employees) or outside (regulatory risks, industry shifts) can kill the deal
  • Work with your M&A attorney and CPA to discuss the tax implications of different deal structures and your possible tax liability (examples: asset vs stock purchase, Section 1202 gain exclusion, state tax implications)

Sold! What to do with the money from the sale of your business

Once the deal is done, you’ll need to make some important decisions about what to do with the money from the sale of your business. You’ll also want to consider other aspects of your situation, such as estate planning, gifting, trusts, and asset protection. Whether you plan to fully retire, start a new company, or something in between, you’ll want to get a plan in place to maximize the value of the proceeds.

When you own a business, your net worth is highly concentrated in one asset. Selling gives you the opportunity to diversify your investments and create an income stream for retirement. If your company was producing significant cash flow, it’ll be critical for you to assess whether the sale proceeds will allow you to maintain that lifestyle.

A key part of deciding what to do with the money after the sale of your business is understanding your risks and options. To feel confident that it isn’t too early to retire, your plan should include a Monte Carlo simulation to account for market volatility. This is the best way to stress test a retirement plan.

As a business owner, your focus has been on running and growing the company. When selling your business, it’s imperative to take steps to plan for your personal financial future.

Darrow Wealth Management is a financial advisor for business owners

Our Private Wealth Management Program aims to help business owners manage their personal finances while running a company and eventually successfully transition to retirement. If you’ve recently sold a business or are about to begin the process, speak with a Darrow Wealth Advisor today.


This article was written by Darrow Wealth Advisor Kristin McKenna, CFP® and originally appeared on Forbes.



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