by James McArthur, Family Office Services SVP, Sanibel Captiva Trust Co.
The time has come, and you’ve decided to sell the business. Congratulations! Your ideas, inspiration, and many years of perspiration have paid off. But wait, what do you do now with your time, talent, and money? Planning for life after closing is as important as preparing for and navigating the sale process itself.
If you’ve experienced a sale process, the advisors you’ve hired such as investment bankers, attorneys, and CPA’s have prepared you for a 3 – 18-month period of working through non-disclosure agreements, Letters of Intent, due diligence, communication with employees, retention of key team members and customers, regulatory restrictions, transaction structure, representations and warranties, earn- out provisions, employment agreements, and tax implications. Depending on the size and nature of the firm, the list may be longer. Regardless, these are matters related to the business itself.
What about you as an owner? Are you ready to navigate the post-sale journey and enjoy the rewards of your hard-earned success?
Selling your business can be a significant life change. You may have mixed emotions including relief and accomplishment as well as uncertainty about the future. With proper planning and preparation, the path through the transition can be much easier. A few common occurrences sellers have experienced during and after the sale:
• Structure of Sale Proceeds – Depending on the terms, there may be cash at closing as well as seller notes, escrow retention, earn-out provisions, and possibly ongoing employment agreements.
• Retirement of Debt – If the business has outstanding debt, more than likely these obligations will be paid off by sale proceeds, therefore reducing net cash to the seller.
• Taxes – Deal structure dictates how much of the sale is subject to taxes, again reducing net proceeds.
• Professional and Advisory Fees – To the extent necessary, these fees are deducted from seller proceeds at closing.
• Lifestyle Requirements – Determine goals and desires early in the process as they may drive deal structure and timing.
• Future Opportunities – Consider planning for new investments or pursuing other interests.
• Health and Family – Taking care of yourself and loved ones is often a primary goal including spending time with family, planning for health and maintenance, and providing for future generations.
• Concentration to Diversification – Owners are accustomed to investing in themselves given their knowledge and longevity in their respective business. Once the business is sold, many sellers go through an adjustment process as they shift to investing in several companies (equity) and fixed income securities to generate income and protect assets.
Organization with respect to your personal financial and legal documents is an important first step in creating a plan for how you will manage your time and money as well as protect assets after the sale. Engaging a personal advisor, just as you’ve done for the business is valuable in terms of managing post-closing wealth, minimizing taxes, and developing a long-term/multigenerational financial plan.
Fiduciary partners and advisors often assist owners early in the sale process to maximize the effectiveness of planning. If the business has operated for many years, there may be sizable capital gains resulting in significant tax liabilities. In addition, the business may have attributes that lend themselves to creative estate planning options. Certain exemptions for gifting assets are due to expire in 2025. Taking advantage of the current provisions, while still in effect, could result in substantial estate tax savings for heirs and beneficiaries. We specialize in this at The Trust Company through experience, competency, and depth of talent. Most of all we invest the time to learn your family’s history, intentions, goals, and priorities – all of which are vital to ensuring a smooth transition from ownership to enjoying life after the sale.