Note to Business Owners: If You Want to Maximize the Sale of Your Business, Plan Early

Dear Clients & Community, 

Often clients come to us and they ask, “When should I start planning for the sale of my business?”

As soon as you are contemplating your exit you should be talking to somebody. The earlier you can begin planning the better, 1-3 years out is ideal (though realistically business owners may not have this kind of lead time). Or, if you get an unsolicited offer from brokers or investment bankers, you should talk to a professional before you sign anything or enter into any negotiations or agreement. 

This includes before you receive a Letter of Intent (LOI). 

If tax planning takes place too close to the sale, the IRS or a state taxing authority (ex. California Franchise Tax Board) may challenge the transaction on the basis that the sole reason for implementing pre-sale planning was for tax purposes. This could subject you to penalties and interest. In other words, planning too close to the sale can have costly consequences. However with early planning, there may be an opportunity to eliminate or defer taxes. 

You’ll want to involve your wealth advisor (hi! :)), accountant, and attorney as early as possible, so that the transaction can be evaluated to achieve your goals, minimize taxes and maximize what you’ll take home. 

Factors that can impact the range of planning opportunities:

  • What type of entity do you have? What type of stock do you have? What’s your tax basis? What type of business do you have? How long have you owned the business? 
  • Is it likely someone will want to purchase your equity or your assets (stock or asset sale)? Is there flexibility between the two? 
  • Is your company a domestic C corporation that was a qualified small business when it issued stock? Might there be an opportunity to restructure in order to potentially qualify as an eligible issuer of qualified small business stock (QSBS)? 

We are here as your resource. If you or someone you care about is considering a business sale, reach out to us – early – so that we can help you make the most of this important moment. 

In good wealth, 

Anne B. Johnston
Managing Director at Created

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