How to Sell Your Business and Retire the Smart Way
By: Barry E. Haimo, Esq.
December 9, 2021
After years as a small business owner, the time has finally come to reap the rewards of your hard work and retire. And you are definitely ready for the rest and relaxation that comes with retirement — but have you considered the future of your business without you?
Many entrepreneurs don’t put enough thought into the careful planning needed to sell or transfer a business until it’s too late. Below are a handful of key factors to know before you sell your business and retire.
Plan Ahead Before You Sell Your Business
If you are an entrepreneur or small business owner, it’s never too early to start thinking about your future and the future of your business.
Starting to plan early, even a few years before the sale or transfer of your company can make a huge difference. And devising a succession plan for your business with the help of a professional can save you money, stress, and red tape down the line. It can even improve the value of your company and entice potential buyers.
Consider the following actions as you create a plan to sell your business:
- Organize and review important documents, such as employee files, finance books, and insurance paperwork
- Consider hiring a professional accounting firm to audit your company
- Alternately you could have a professional run a quality of earnings report, which is slightly less involved than an audit
- Hire a attorney who specializes in business planning to help you create or update your succession plan to ensure a smooth transfer or sale
- Know your company’s value, especially if it is publicly traded on the stock exchange.
- Identify the income you want to sustain your lifestyle during retirement.
Your Business’s Future
As you develop your succession plan, consider the kind of future you want for your business when you are no longer at the helm. You may be trying to keep your business in the family. Or perhaps you do not want to transfer your company to a beneficiary and have decided you want to sell.
Are you comfortable selling it for market shares? Or do you want your business’s legacy and growth to continue without you? It’s also important to decide in advance what kind of payout you are hoping for in a sale. Hiring a professional can help match you with the right kind of buyers you seek. For example:
- A private equity firm can offer a mix of cash and rollover equity
- Large publicly traded companies (and some privately held firms) are more likely to do all-cash deals
Know Your Tax Facts
As you close in on a sale, make sure you have all the facts about how it will affect your taxes. The goal is always to try to reduce the tax impact on you and your business.
The type of corporation and the owner’s federal tax bracket are both factors in determining taxes during the sale of a business. It is preferable to have the funds from a sale taxed as long-term capital gains rather than income, and a good succession plan (and professional advisor!) can help with this.
Retirement and Security
Congratulations! The sale of your business is complete and perhaps you are now a high net worth (or even ultra high net worth) individual with more liquid assets than ever before.
So, how do you manage them wisely?
- Review Your Estate Plan with a Professional. With a shift in finances and starting retirement, revisiting your estate plan is key. Make sure your beneficiaries are up to date and you have someone to act on your behalf and manage your assets.
- Adjust and Update Any Trusts. Additionally, individual trusts, wills, and durable and medical powers of attorney should reflect your current wishes and assets.
- Consider Life Insurance to Pay Estate Taxes. Lastly, your estate will grow in value due to the sale of your business. Many individuals consider additional life insurance to offset costly estate taxes.
When the time comes to sell your business and retire, reaching out to a professional who specializes in business succession and estate planning should be your first step. The attorneys at Haimo Law can help you meet your planning goals and ensure the future success of your business and personal matters. Call 954-228-3369 to get started today.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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