IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Justin Young of Opal Advisors (https://opaladvisors.com/):
Selling Your Business? 4 Reasons to Meet With a Financial Advisor Before the Sale
For many business owners, selling their company is the culmination of decades of hard work—and potentially the largest financial transaction of their lifetime.
Yet one of the biggest mistakes an owner can make is waiting until after the sale to start financial planning.
By then, many of the most valuable planning opportunities may already be gone.
A financial advisor can help you think beyond the sale price and answer a more important question:
How do I turn the value of my business into lasting financial security for me and my family?
1. Reduce the Tax Impact—and Understand What You Actually Keep
The sale price is only part of the equation. What ultimately matters is how much you keep after taxes.
Two offers with the same headline price can produce very different financial outcomes depending on how the transaction is structured. Cash at closing, installment payments, seller financing, earnouts, rollover equity and the allocation of the purchase price can all affect your taxes, liquidity and risk.
Depending on your circumstances, pre-sale planning may also identify opportunities to defer, reduce, or even possibly pay no capital gains taxes.
The key is timing. Many strategies need to be evaluated and implemented before the sale is finalized—and potentially before a binding agreement is signed.
A financial advisor working alongside your CPA and attorney can model different scenarios so you can evaluate an offer based not just on the sale price, but on the after-tax proceeds you actually receive.
2. Determine Whether the Sale Is Enough to Fund Your Retirement
A $5 million business sale sounds like a lot of money. But is it enough?
The answer depends on taxes, your lifestyle, inflation, investment returns, longevity, healthcare expenses, other assets and what you want to leave to your family.
Ideally, this analysis happens before you negotiate the sale.
A financial advisor can work backward from the retirement you envision to estimate the after-tax proceeds you need from the business sale. That can help establish a minimum financial target when evaluating potential offers.
For example, an $8 million offer may sound attractive, but if taxes and transaction costs leave you with $5 million—and your financial plan indicates you need $6 million to comfortably fund your goals—the offer may not accomplish what you need it to.
The goal isn’t simply to sell your business for the highest possible price. It’s to understand what you need to walk away with to make the next chapter of your life financially sustainable.
3. Replace Your Business Income With Portfolio Income
For years, your business may have provided your salary, distributions and other benefits. After the sale, that income disappears overnight.
A financial advisor can help create an investment and withdrawal strategy designed to provide a reliable stream of income while preserving enough capital for future needs.
That can include determining how much to hold in cash, bonds, equities and other investments, as well as coordinating withdrawals to manage taxes and reduce the risk of having to sell investments during a market downturn.
The objective isn’t simply to invest the proceeds. It’s to create a personal income strategy that replaces the economic role your business used to play.
4. Create an Estate Plan for Your New Wealth
Before a sale, much of your net worth was likely concentrated in a business. Afterward, your wealth is now primarily in liquid assets.
That can dramatically change your estate planning needs and can open up options previously not available to you.
A financial advisor can work with your estate attorney to evaluate trusts, gifting strategies, charitable planning, beneficiary designations and other techniques designed to support your transfer of wealth efficiently.
For owners with significant estates, planning before the transaction may also create opportunities that become more difficult—or impossible—once the business has been sold.
The Best Time to Plan Is Before the Sale
Selling your business shouldn’t be viewed as a single transaction. It is a transition from building wealth through your business to managing and preserving that wealth for the rest of your life.
And many of the most important decisions need to be made before the money ever reaches your bank account.
At Opal Advisors, we help business owners answer four critical questions before a sale:
- What will I actually keep after taxes?
- Is it enough to fund the life I want?
- How do I replace the income my business provided?
- And how should I protect and ultimately transfer that wealth?
If you’re considering selling your business in the next few years, the time to start planning isn’t after the sale.
It’s before it.
If you have questions relating to the content of this article or investment strategies associated with selling a business or wealth creation, Justin Young would welcome the opportunity to answer them. Mr. Young can be reached at (206) 519-2357 and [email protected].
Disclosure: This material is provided for informational and educational purposes only and should not be construed as individualized investment, tax, or legal advice. Tax laws and regulations are subject to change, and the tax treatment of a business sale depends on individual circumstances and transaction structure. Opal Advisors does not provide tax or legal advice. Clients should consult with their CPA, attorney, and other appropriate professionals regarding their specific circumstances. Investing involves risk, including the possible loss of principal. Opal Advisors, LLC is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.