For many of our Bell business owner clients, the sale or transfer of their business can be the largest wealth creation tool of their lives. In some cases, they may only get one shot at a sale or transfer, which makes it crucial to be as prepared as possible.

If you’ve been thinking about possibly stepping away from your business and looking ahead to a potential sale, it’s important to consider the different possibilities. Here are some questions to ask yourself as you begin to prepare: 

• Who could be a potential buyer for your business? Would it be an employee or employees? Private equity? A competitor? 
• Logistically speaking, how would you sell your business? Would you hire a broker, or has a competitor or private buyer reached out unsolicited? 
• Have you calculated how much you would need to make in a sale to meet your retirement goals? 
• Are your financials cleaned up? Do you have data organized to send to a prospective buyer? 
• Have you reviewed how your business’s current tax structure could affect your sale price? 
• When you identify a buyer, who would be responsible for keeping the sale on track?

Your answers to these questions will help you begin to crystalize how and to whom you’d like to sell your business. That information can then inform the specific shape your sale ends up taking, as there are several different options and strategies that will ultimately depend on your – and your buyer’s – specific situation. Here are some basic strategies to be aware of: 

1. Stock Sale: This is the simplest form of a business sale and potentially the cleanest tax burden on the seller. In this case, the buyer acquires the stock of your business, and the sale price is generally taxed at favorable capital gains rates. The challenge here is the buyer can potentially take on any prior liability in the company, which some may not be comfortable committing to. 
2. Asset Sale: This can be a common type of strategy for businesses with tangible assets, such as real estate or equipment. In this case, the buyer buys the assets and takes over the running of the business. You, as the seller, retire the stock of your company. For buyers, this strategy can be preferable because it may depreciate the sellers’ assets upon purchase, but for sellers it may be less favorable as it can result in a higher tax rate on the sale. 
3. Partial Sale: Perhaps it makes sense to sell only a portion of your business rather than the entire thing. In some cases, business owners may choose to sell minority or majority stakes in their business to their employees, children, private investors or private equity funds. When considering a partial sale, it’s critical to have clear and reasonable expectations, operating agreements and exit strategies in place. 
4. Employee Stock Option Programs (ESOP): ESOPs have gotten a lot of buzz over the last decade, and can be a great structure if you’d like to sell your business to your employees. ESOP sales can be complex, however, and should be considered carefully. 
5. The Non-Sale Option: After considering potential sale scenarios, you may decide that you don’t want to sell after all – perhaps because your business’s cashflow is too good to lose. In that case, you could consider hiring a competent management team to take over the day-to-day operations while you still retain ownership.

In our experience, the most successful sales and transfers of businesses have resulted from our clients carefully thinking through those important initial steps, and then working with a team of experts to develop a comprehensive plan. Investment advisors, bankers, lawyers and accountants all play important roles in this process, and will be able to help you prepare.

If you own a business and have questions on a potential sale or transfer, please don’t hesitate to give us a call. 

This article was published in the Q2 2024 issue of the Bell Wealth Newsletter.