By Stuart M. Brown, Partner and Co-Chair, Commercial Transactions, Brown Moskowitz & Kallen, P.C.
Richard A. Fortune, LUTCF, Financial Services Executive and Financial Advisor, The Fortune Group, Barnum Financial Group
You’ve dedicated your career and your life, and often the lives of your family members, to building and maintaining a successful business. Now, you’ve reached a point where you would like to sell the business, relax and reap the rewards of your years of hard work, or perhaps, dive into a new entrepreneurial venture. In either case, two things are true: it is vital for you to determine the accurate value of the business and to understand what your actual income and net worth will be upon the sale of the business so you can maintain the lifestyle you aspire to live in your next chapter.
Difficult as it may be to hear, most business owners tend to overestimate the worth of their businesses. It’s understandable, you take much pride in your business the same way you might your home — and realtors will tell you most homeowners also overestimate the worth of their residences. Understanding the market value of your business should involve working with experienced merger and acquisition professionals, e.g. your business attorney, who can assist in selecting the best business valuation experts for your specific company – the professionals who intimately understand your industry, your market position against competitors and your unique value proposition. You should also confirm that your accounting firm can accurately assemble all your financial data, so the business valuation team is working with true, accurate and verifiable numbers.
Once you know the real value of your business, you can work with an intermediary (for example, an investment bank) to run a process or “take it to market” and begin receiving offers. An experienced mergers and acquisitions attorney will assemble and manage “the A team” of subject matter experts who will execute the sale – think employment attorneys to protect your employees as they come under new management, intellectual property attorneys as you protect and potentially transfer trade secrets or proprietary ingredients or manufacturing processes, environmental attorneys who can manage issues relative to site remediation (if required) and so on.
One way to think of the composition of your transaction team is to picture a solid four-legged stool. You, your mergers and acquisitions attorney, your accountant and your intermediary comprise the legs of a solid stool, a platform for a successful transaction!
Once you know the range of net sale proceeds that you can expect to realize from the sale of your business, it’s time to focus on your personal finances. Selling a business inevitably has major tax implications. You may defer collecting proceeds, take a lump sum or continue to receive compensation post-sale in the form of a salary, deferred payments or contingent payments (e.g., an earnout). Working with an experienced wealth management team along with a tax, trusts and estates attorney can assist in mitigating taxes by deploying net proceeds into wealth-building vehicles that align with your long-term goals for your family. While every business owner has unique financial concerns following the sale of a company, important considerations post-sale typically involve deploying capital into investment vehicles to preserve legacy wealth and enable a worry-free retirement, planning for long-term care via insurance products, educational funding for future generations and determining what level of risk is appropriate for future business endeavors.
The benefits of assembling an experienced transaction team, with a deep bench of expertise around the intricacies of the mergers and acquisitions process including a mergers and acquistions attorney and a wealth manager, when selling a business should not be understated. A successful sale begins with an accurate expert valuation, careful identification of an appropriate buyer, an understanding of one’s total personal expenses and tax liabilities post-sale and assembling the right team to maximize proceeds from the sale, minimize tax liabilities and determine the ideal financial vehicles to preserve wealth for years ahead.