Preparing to Sell Your Business in an Effort to Maximize Value

Preparing to Sell Your Business in an Effort to Maximize Value

February 23, 2024

For business owners, the prospect of a liquidity event—the time when they can convert their hard-earned business assets into cash—is an exciting and potentially life changing experience. Whether it's a sale, merger, or IPO, the financial implications are significant.   

The path to optimizing the outcome of a liquidity event is intricate and requires careful, thoughtful planning before taking the plunge, most often spanning years prior.  This includes building a core team of professionals to navigate through the process from the beginning including an attorney, a CPA, a banker, and a financial advisor ideally who holds a CEPA (Certified Exit Planning Associate conferred by the Exit Planning Institute) credential with expertise in the financial preparation of exit planning. 

For now, let’s explore the pivotal reasons for including a financial advisor on the core team. 

Why Engage a Financial Advisor Before Embarking on a Liquidity Event? 

Choosing the right financial advisor with the requisite experience and knowledge is critical to the outcome. Timing is equally as critical, they should be engaged from the beginning as it is important to get the right tax, estate and insurance planning in place BEFORE selling.  It can take years to fully implement strategies designed to meet the needs of the seller.  If you are a business owner, consider some of these issues: 

  1. Are you and your family in solid financial shape outside of the business? 
  2. Do you need income from the business?  What would happen if you lost that income due to death or disability? 
  3. What are your spending needs to support your desired lifestyle? 
  4. Are there any special circumstances to consider, e.g. special needs children, health issues, family involvement, any prenuptial agreements? 
  5. What if you or one of your partners got divorced? 
  6. What if you had a falling out with your partner or lost a key employee? 
  7. What if you lost your largest client? 

These are just a few, there are many more that will come into play when planning to sell depending upon your unique situation.  

What Types of Issues Would a Financial Advisor Address? 

Strategic Financial Planning:  Coming to the table with a wealth of expertise, a financial advisor helps business owners develop a comprehensive and strategic financial plan that aligns with their long-term goals.   

Risk Management:  Liquidity events come with inherent risks. A financial advisor can assess these risks and develop strategies that seek to minimize them. Whether it's diversifying investments, restructuring or establishing new accounts (think Trusts), incorporating insurance protections, or creating contingency plans if Plan A doesn’t work, having professional advice can seek to safeguard your wealth during and after the event. 

Tax Mitigation: Taxes can significantly impact the net proceeds from a liquidity event. Financial advisors specialize in understanding the complex tax landscape and can help structure the transaction in a way that works to minimize tax liabilities. Proactive tax planning can potentially save substantial amounts of money. 

Wealth Preservation: Preserving the wealth generated from a liquidity event is typically a top priority to business owners.  Financial advisors can recommend prudent investment strategies, estate planning, and other wealth preservation tactics to help ensure that the security of your financial gains are sustained over the long-term. 

Custom Investment Strategies: Often after a liquidity event, business owners need tailored investment strategies that align with their new risk tolerance and financial objectives. An experienced financial advisor can do this, thus maximizing returns from an investment portfolio while addressing the unique goals and preferences of the business owner. 

Expert Negotiation:   Having a valued and experienced financial advisor on your team can make the difference between a good and great deal.  They can bring negotiation skills to the table offering advice and guidance so that no financial stones go unturned.  From evaluating offers, validating benefits, managing expectations, and identifying possible problems, having a financial professional advocating on your behalf can make a world of difference. 

Last but not least, considering the people who helped you grow and maintain your business for many years is paramount to most business owners preparing to sell.  Your employees, your clients, your investors – the impact on these important stakeholders should be considered so that they thrive in your absence with new leadership.   

So, would you sail in uncharted waters without a compass?  Would you drive to an unknown destination without GPS?  Likely not.  Before you set sail or take to the road on your liquidity journey, consider partnering with a financial advisor who can provide the insight, strategies, and support needed to address the complexities and work toward maximizing the benefits of this transformative financial event.    

Our team at McLaughlin Private Wealth stands ready to help you navigate through this exciting next chapter in your professional and personal life.