Selling your business can be a rewarding and fulfilling experience, but it also comes with its challenges and uncertainties. There are some questions, for instance, about how you exit your business that you’ll need to find answers to. For instance:
- What will you do after you’ve handed over the reins to someone else?
- How will you manage your finances, your lifestyle, and your legacy?
- How will you ensure a smooth and successful transition for:
- yourself;
- your employees, and;
- your customers?
These are some of the questions that you need to answer before you exit your business, and having a clear vision for your post-sale future can help you achieve them.
In this article, we will discuss some of the key aspects of business exit planning, such as:
- Potential pitfalls of a business exit that you’ll want to avoid;
- Things you want to take care of after selling your business;
- Transitional matters within the business to handle during and immediately after the sale;
- All tax matters you need to consider to optimise your net proceeds;
- How you can still be involved in your industry or community.
How things can go bad when you exit your business
It would only be right to first tackle how a business exit in the wake of selling your business can go wrong. Some pitfalls involved with exiting a business after selling it are:
- Losing access to customer data and feedback;
- Missing out on future growth opportunities;
- Facing legal or tax issues due to incomplete or inaccurate documentation;
- Having difficulty transitioning to a new career or lifestyle;
- Dealing with emotional stress or regret.
We’ll take the time to address several of these matters below.
Taking care of family after you exit your business
One of the most important things to consider after selling your business is how you will take care of yourself and your loved ones. You may have spent years or even decades building and running your business, and now you can enjoy the fruits of your labour.
However, this also means that you will have to adjust to a new reality, where you may not have the same income, activity, or purpose level as before.
To avoid feeling lost or bored after exiting your business, you should have a clear idea of what you want to do with your time, money, and energy. Here are some options to consider:
- Pursuing a new career or passion project that fulfils you;
- Travelling the world and exploring new cultures and experiences;
- Volunteering for a cause that matters to you;
- Spending more quality time with your family and friends;
- Taking care of your health and wellness;
- Learning new skills or hobbies that interest you.
Whatever you choose to do, make sure that it aligns with your values, goals, and personality. You should also consult with your spouse, partner, or family members to ensure they are on board with your plans and expectations. Remember that selling your business is not only a financial decision, but also an emotional and relational one.
Handling transitional matters when you exit your business
Another aspect of business exit planning is handling the transitional matters that arise during and after the sale. Depending on the type and terms of the deal, you may have to deal with various issues such as:
- Negotiating the price and structure of the sale;
- Conducting due diligence and preparing legal documents;
- Communicating with your employees, customers, suppliers, and other stakeholders;
- Transferring assets, liabilities, contracts, and licences;
- Providing training and support to the new owner or management team;
- Resolving any disputes or contingencies that may arise.
To handle these matters effectively, you should have a professional team of advisors who can guide you through the process and protect your interests. This may include an accountant, a lawyer, a financial planner, a tax advisor, and a transition coach. You should also have a clear exit strategy that outlines your objectives, timeline, expectations, and contingencies.
Optimising your tax considerations
One of the most critical aspects of business exit planning is optimising the tax-related considerations that affect your net proceeds from the sale. Depending on the type and structure of the deal, you may have to pay various taxes such as:
- Capital gains tax on the difference between the sale price and the cost basis of your business;
- Income tax on any ordinary income or recaptured depreciation from the sale;
- Estate tax on any assets that exceed the federal or state exemption amount;
- Gift tax on any transfers of ownership or value to family members or others.
To minimise your tax liability and maximise your net proceeds from the sale, you should consult with a qualified tax advisor. A qualified tax advisor can help you plan and take advantage of various strategies such as:
- Choosing the optimal deal structure (e.g., asset sale vs. stock sale);
- Timing the sale to coincide with favourable tax rates or deductions;
- Allocating the purchase price to different asset classes or categories;
- Using tax-deferred or tax-free vehicles such as trusts or retirement accounts;
- Implementing charitable giving or estate planning techniques.
By planning and optimising your tax situation, you can ensure that you keep more of what you earn from selling your business.
Staying involved after you exit your business
Finally, another aspect of business exit planning is deciding how you want to stay involved in your industry or community after selling your business. You may have built valuable relationships and networks over the years that you don’t want to lose or neglect.
Also, you might bring valuable knowledge and expertise that you want to share or leverage.