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Prepare for the Sale of a Business in 6 Steps

Often, a lucrative business opportunity comes along but doesn’t work out because the business owner hasn’t adequately prepared by building a sales strategy, creating a tax plan, streamlining finances and making provisions for the partners or family members involved.Selling a business can create a unique liquidity event and have a substantial impact on taxes, cash flow, wealth-transfer plans and an owner’s lifestyle.

To help you potentially maximize the value of a sales deal and  keep your assets protected, put a strategic plan in place before any paperwork is signed.

Business owners should consider their time frame for selling the business as well as the market.

Have a succession plan at least three years in advance to give you time to get your business in order and be ready for opportunities that arise.

Consider taking the following steps to prepare for the sale of your business:

1. Build a sales strategy with a wealth advisor.

Advisors who specialize in this area can help you maximize the financial and emotional value of the business. Specialists can help you define a strategy in alignment with your family’s goals and objectives.

Plus, a well-chosen advisor can help you assemble the right team to sell your business. An unbiased advisor can guide you throughout the process, from interviewing investment bankers to bringing together all the legal, tax and business experts.

2. Create a tax plan.

Selling a business can have a huge impact on your taxes. If the gain on the sale is long term, a federal tax rate of as much as 23.8 percent could be applied. Additional state income taxes, where applicable, may also be imposed on the gain. Doing tax planning before selling might help in maximizing deductions and avoiding penalties.

Work with a tax advisor before completing the sale to establish your income expectations for the year, calculate anticipated taxes based on projected gains and determine if any estimated tax payments are required along as well as year-end payments.

Remember that the value received from your business will also be included in your estate after your death. Federal estate tax rates of as much as 40 percent may apply. Some states collect additional estate or inheritance taxes.

3. Consider selling the firm over time.

To offset the tax impact, consider selling the business on an installment basis. This involves collecting payments over several years, allowing you to recognize gains over time and potentially avoid higher tax brackets.

This is most effective if you are confident the buyer will be able to meet his or her future payment obligations.

4. Clean up the financials.

Before talking to buyers, eliminate financial items not directly related to operating expenses. This can include insurance or salaries for nonworking family members, as well as cars, expense accounts and other discretionary expenses.

If it’s not something the buyer would want to pay for, it shouldn’t be there.

Related: The Key to Maximizing Return When Selling a Business 

5. Review the financials with an accountant.

You can conduct one the following financial reviews with an account:

A compilation, the least formal type of assessment, involves a certified public accountant’s preparing financial statements based on information provided by the business owner. The CPA won’t offer any opinions on the data and will assume everything is accurate. A compilation is useful for evaluating internal goals but doesn’t provide the validation a buyer will want.

A review involves a more in-depth analysis of the financial statements. The CPA provides an opinion of the company’s financial status and identifies potential issues. The review provides “limited assurance” that nothing serious came to the accountant’s attention.

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