When Selling a Family Business, What Are the Considerations and What Advanced Planning Is Needed?
Selling your business is a major life decision, but if you do it carefully, you can bring in a significant amount of income while taking a good bit of responsibility off your shoulders. To ensure the best possible deal for yourself and your family, it’s essential to take your time when planning the sale. Here are a few important considerations to keep in mind:
If you have a small family business, its operations may primarily depend on the owner and a few key employees. In some cases, you may offer to consult with the new owners a few times after the sale to smooth over any operational concerns.
Understandably, though, not everyone will want to do that, and if you won’t be available post-sale, you must do your best to create agreements with essential employees before selling your business. If these employees stay on for a set amount of time following the sale, the business is more likely to continue forward with fewer hiccups.
You also may want to talk to vendors to make sure your existing contracts carry over into the new ownership. Fixing balance sheets (if needed) and making sure your books are in order are both also important.
Does Everyone Agree to the Terms of Sale?
When selling your business, especially if it’s a family business, it’s critical that each of your business partners (and their spouses as well, ideally) are in agreement on the terms of the sale. With everyone in agreement, the chances for a successful sale are significantly increased.
Getting your business professionally evaluated is a critical step in reaching an agreement. When you have a better idea of what the business is objectively worth, it will be easier for family members to form an agreement.
Does the Business Name Need to Be Changed?
Changing the name of the business when you sell it is a concern that can be negotiated between you and your buyer. Generally speaking, the brand name is included in the sale price, but you also have the option of selling the business without its name. Do keep in mind, though, that if your business is well-established, its name will undoubtedly carry significant value.
If you choose to sell the business but keep the name, buyers may not pay top dollar, and they might even reconsider buying altogether. On the other hand, if your customers see the same business name after an ownership transfer, they are likely to keep patronizing your business. It’s generally a good rule to not confuse previous customers.
How Will the Sale Impact Estate Planning?
Selling your business to an unrelated party is generally less complicated than passing it on to a family member, at least when it comes to estate planning. However, once you sell your business, you may find yourself facing more taxes than you may have initially anticipated.
If you intend to gift part of the proceeds of the sale to your children or other family members, it’s important to be aware of transfer taxes, which can amass up to 40% of the transferred value, but you can sometimes lessen them by creating one of a few types of trusts.
Navigating the process can be very complicated, but a qualified business broker will be able to help you negotiate the right deal structure and decide on the best way to pass your assets onto your children or other relatives.
Thinking About Selling Your Business?
At Sunbelt Business Brokers, we often work with small and medium businesses to facilitate quick sales for the right price. We also offer a free business valuation calculator to help you get a sense of the worth of your business before selling it.
If you’re getting ready to sell or are just thinking about it, reach out to us today! You can schedule a free consultation or business valuation if you’re ready to sell. Even if you aren’t quite ready, our expert brokers will be happy to answer any questions you may have!