As a business owner, you’ve set many goals throughout your career and leveraged a variety of strategies to achieve them. Planning for a potential business transaction should be no different. The earlier you establish your objectives, both personally and professionally, the more likely a successful outcome becomes.

Asking the right questions in the planning stage, then following the right steps can make all the difference.

Questions to Start Business Transaction Planning

Having answers to these questions could help you and your family to prepare for the selling process.

• What does your life post-transaction look like? Will you still be involved in the business, starting a new business, or fully retired?
• How will your personal balance sheet evolve through the transaction process?
• Do you understand the tax implications of selling your business?
• What do you need to net from the business to meet your personal financial goals?
• How do you efficiently deploy proceeds from the transaction?
• Is your company structured appropriately and prepared for the rigors of a transaction?
• If the net proceeds from the transaction exceed your personal financial goals, what structures are most effective to leave a legacy for your family or charitable causes?
• Are there estate planning strategies you might implement before selling your business?

Advantages of Planning Ahead

When a business transaction is approaching, there’s greater opportunity to address the questions above and take appropriate actions. The availability and effectiveness of these techniques diminishes dramatically the closer you are to a transaction, especially once you begin to entertain offers.

Even if a transaction isn’t in the immediate future, having a plan that includes shareholder agreements and estate documents can help enable continuity for the business, minimize potential loss of value, and provide for your wishes when that transaction occurs.

Steps for a Successful Business Transaction

The following steps could help set you on the path to toward transitioning from a successful business transaction.

Model Your Personal Financial Plan to Understand Your Lifetime Consumption Needs

Beginning your transition process with a financial plan can greatly contribute to the transition’s success—helping you evaluate opportunities as they present themselves, assess your risk profile, and evaluate the plan itself.

A personal financial plan should model your personal balance sheet, cash flow, and wealth allocation and how they may change over time. The process of creating the plan can be as important as the result because it allows you to identify your objectives, risk tolerance, and goals and create a timeline for achieving them.

Mapping your goals can help attempt to resolve unique family issues, consider fair versus equal for children or employees, assess lifetime cash flow needs, and enhance after-tax wealth transfer and asset protection.

With an understanding of your projected lifestyle needs and wants, transaction advisory professionals can help you evaluate gifting strategies, entity structure, post-transaction work schedules, efficient balance sheet allocation, and legacy planning.

Structure the Deal to Fit Your Personal Needs

The tax and financial planning framework allows you to understand and evaluate different deal structures. It serves as a way for you to compare and determine which transaction deal makes the most sense for you and your family based off the goals evaluated above.

By modeling tax liability, equity rollover strategies, earn-outs, and other deal factors, you can determine the best fit moving forward. This framework can then be updated to model various deal structures, as the transaction negotiation process evolves with buyers.

Set Goals for Multigenerational Estate and Philanthropic Planning

A transaction creates planning opportunities for estate planning and charitable giving, particularly when a deal is expected to net liquidity in excess of what’s estimated to be needed for consumption during your lifetime.

Completing an estate plan prior to a transaction could save on taxes associated with the sale.

Execute Desired Strategy

The steps above allow for the sale process to be as streamlined and efficient as possible. Post-transaction, it’s important to have a team to help implement your goals.

• Balance sheet diversification. Shifting from a balance sheet that included ownership in a privately held business to one consisting primarily of cash and liquid investments can be overwhelming. Adequate planning can help address how to allocate funds between public markets, private markets, real estate, and other assets, as appropriate.
• Cash flow management. Once salary and distributions from a business cease, you need to have a plan in place to understand cash flow needs and which assets will provide that cash flow.
• Tax planning. Income taxes can have a major effect on the long-term growth of your total investment portfolio. Your plan can consider the income tax effects on your future cash flow and identify strategies for managing the cost.
• Estate planning. Assets that aren’t consumed during your life will go one of three ways either during your life or upon your death: charitable causes, non-charitable beneficiaries, and government income and estate taxes.

Meeting with a qualified professional to help assess your goals and use the appropriate tools to meet your needs can optimize your impact to charity and beneficiaries.

Each transaction is unique. By following this framework and working with a team of advisors you can more intentionally design your transition plan to increase net proceeds and plan for life after.

We’re Here to Help

For more information on how transaction preparedness could benefit you and your business, contact your Moss Adams professional.

Additional Resources

• Private Clients Practice
• Transactions Consulting
• Business Transition Planning Resources
• Estate Tax Planning Services