You’ve put decades of sweat equity and capital into owning and running your business. Now the time has come to sell it. But where do you start? Selling a business can be a complicated endeavor that involves multiple concerns. In addition to your financial advisor, you will need to consult with an accountant and an attorney, and when the sale is made, you will need to continue to work with your advisors to determine the best ways to handle the proceeds.
You have likely considered your succession plan in advance of your decision to sell. In doing so, you encountered several options. Should you sell your business or transfer it to the family? Should you structure your succession to take effect during your lifetime or at your death? You answered those questions and made your decisions based on your circumstances and objectives.
Now, as you prepare to move your business along, inside or outside your family, you need to determine the worth of your business to make sure you price it properly. A business valuation will generate a detailed explanation of your business’s worth. The document will help you determine and add credibility to your asking price.
The timing of your sale is key. You will want to sell when your business looks its best to prospective buyers, when your business is experiencing increasing profits and consistent income figures, when you have a strong customer base and perhaps even a substantial customer contract that spans several years.
A business sale may take considerable time, and finding the right buyer can be challenging. Getting the best price is always a primary concern, but the form of consideration, the structure of the arrangement, and compatibility with your buyer are also key ingredients in the right deal. HBK Corporate Finance partners with your HBKS Wealth advisor to provide the expertise and services critical to your best outcome, whether you want to negotiate with a single buyer or several candidates.
Several financing options are available to you and the buyer of your business. The option you ultimately choose will be the result of many considerations, including the identity of the buyer—family member, corporate entity, unrelated third party—the purchase price, and your own cash requirements, tax considerations, and flexibility.
A third party buying your business might require a loan. You could act as a creditor and finance the transaction, taking installment payments over a specified period. However, although financing the sale yourself may make it easier to sell your business, it might also keep you up at night concerned about its ongoing success and your buyer’s ability to continue making their payments.
You might want to withdraw from the business but keep it in the family. Your children or other relatives who work in your business could be your buyers. When selling your business to a family, there are certain financing arrangements available you probably wouldn’t consider when selling to someone outside your family. There are also tax considerations that apply specifically to transactions within the family—some favorable, some not so favorable.
Or you could gift your business by transferring it into a family limited partnership (FLP) to manage and control the business. You and your spouse could be the general partners, retaining control of the business itself and receiving income from the business, while your children are limited partners. By transferring the business to an FLP and making annual gifts to the limited partners, you may be able to use valuation discounts and substantially reduce the value of the business for tax purposes.
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
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