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If you own and operate a family business, it is more than likely a significant part of your family’s identity. While you may wish to see your family business continue for generations to come, not all families have a viable successor to continue the family’s legacy. If this is true for you, you generally have two options—close the business when you retire or sell it to a third party.
Selling your business to a third party can be a profitable solution. However, in most cases selling the business outside the family means you’ll also have to hand over all control to the new owner. This can be a major adjustment, especially if you’ve been heavily involved in the day-to-day operations. Your financial and professional future may suddenly become very uncertain—a challenging prospect for many business owners.
Once you set the wheels in motion to sell your business to a third party, the deal can close quickly. Therefore, it’s important to be sure you’re truly ready to sell before making any life-changing decisions. As you evaluate your options, the following considerations can help you develop a succession plan that benefits you before and after the sale of your business.
- Selling Is a Long-Term Process
When motivated to sell, many business owners forget that selling can be a lengthy process. Ideally, you should budget at least three years to prepare and execute the sale of your business. You’ll want to give yourself adequate time to get your company finances in order, develop a plan to retain employees or let them go, and review and organize contracts and other official business documents. Taking time on the front end to clean up your balance sheet and strengthen long-term relationships helps ensure that you make a solid first impression, which can ultimately increase the value of your business.
- Structuring the Sale Matters
You have many options when it comes to structuring the sale of a privately held business. Each option comes with its own set of advantages, limitations and tax implications. As a result, the decision can be complex and shouldn’t be made in haste. When you reach this step, it’s often helpful to consult a team of trusted business, financial and tax advisors to assist you in navigating the many moving parts of a formalized business transaction.
- Dealing with Liquidity Can Be an Adjustment
Finally, selling a family business is a major life event that can result in unanticipated emotional and financial challenges. For example, changing your role from business owner to retiree requires a significant shift in mindset and it’s not uncommon to experience an identity crisis when going through this transition. In addition, a large liquidity event often requires you to make a variety of wealth management and investment decisions that you may not have had to deal with before. As you prepare yourself for eventual retirement, you may want to consult your wealth advisor to develop a financial plan for the next phase of your life.
Selling a business can be a lengthy process plagued by uncertainty each step of the way. This is especially true when you’re selling a privately-held business to an unrelated third party. However, as an astute business owner, you’re likely already surrounded by a team of experts who can help you navigate the many complexities you’re likely to face. If not, assembling a team of trusted advisors can help you achieve the best outcome for you, your family and your business.
To learn more, please contact my colleague Theresa Marx or online through The Privately Held Business white paper series.