I recently sold a car locally through Craigslist–the ever-helpful online classified site that has changed the way consumers transact with one another. It was the easiest sale of a larger-priced item I have ever made. After a full clean and car detail, I posted several pictures and a complete write-up of the features of the car and posted it. Within fifteen minutes I received a phone call from someone stating he was hard-up for a vehicle and wanted to purchase something fast. We met up two hours later and completed the requisite paperwork. It was the fasted all-cash deal. In the real world, such a deal would rarely, if ever happen this quickly. In fact, it is a general rule that the larger the deal, the slower things generally go, especially if the acquirer is thorough with due diligence questions. Like software development, deals always tend to take about 25% longer than you anticipate and about 10x as long as you would typically like. With that in mind, here is a pretty exhaustive list for the business divestment “early bird.”
- Succession Planning. Who will take over? How will they lead? What experience is necessary for them when the current owner is gone?
- Estate Planning. When it comes time to retire from a business many entrepreneurs have left a gap in estate planning. Without proper planning, huge tax, care and other financial burdens could be placed on the business’s successors. Plan early on this one by knowing what i’s should be dotted and t’s should be crossed.
- Tax Liability Consulting. Tax obligations represent a huge aspect of today’s M&A deals. Tax is also heavily intertwined with estate and succession planning. The largest liquidity event of any successful business owner will also be one of the largest taxable moments of your lifetime. Knowing how to successfully avoid the tax, where possible, will be perhaps the biggest boon.
- Finance Obligation and Opportunity Assessment. How will the sale be funded? If the intended acquirer already exists, is there an exit plan for financing the deal that is amicable for all parties involved?
- Deal Structure. Will the deal be cash, stock, debt, earn-out or–as most are–some combination of the three.
- Buy-out Provisions. Is there a buy-out provision that a potential owner could not fulfill? If not, perhaps life insurance contingencies could be purchased to ensure such an event would be mostly mitigated of the risk.
Many other aspects could prove impediments to getting the deal done quickly. Doing proper business planning ahead of time will be extremely helpful.
Because certain life insurance, tax and wealth transfer aspects of selling your business will need consideration years in advance of finally speaking with a consultant, it would be wise to begin talking early, setting up the requisite considerations listed above represents something that will potentially take years to complete. We advise toward starting early on preparing to sell a business. Starting even up to ten years before the intended sale can be extremely helpful. Doing so means you’ll be completely prepared if an offer comes along and the deal can be completed quickly. Doing deals is never easy, but knowing a few things about when to begin can save time and stress when it may be needed most.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck
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