Exit & Succession Financial Planning

You’ve worked hard to build your small business, and now you’re ready to move on to new adventures. What must be done to successfully move on from your company, however? Whether you’re selling it to a new buyer or transitioning ownership to a worthy colleague or family member, there are steps to take to ensure you glean all the benefits and none of the hazards from the transaction. In this article, we’ll discuss how to strategize your organization’s succession plan and your personal exit strategy to ease your path toward your next stage in life.

It Matters Who’s Buying

The person or entity taking over your business is your ‘successor’ as owner (hence the term ‘succession planning’), and their status often determines many of the factors relevant to the sale. 

  • Many people elect to pass their business on to their heirs because it keeps the enterprise in the family and offers stability and continuity that both the company and its customers can appreciate. However, not every daughter or son can manage the workings of a thriving enterprise, and sometimes, the choice of child causes rifts within family relationships. 
  • Sometimes, the logical successor is a trusted co-owner. In these cases, valuing the enterprise also includes establishing the value of each owner’s interest and then determining a sale price that reflects that reality. Co-owners also must decide how and when the transfer of duties and obligations should occur.
  • Perhaps a highly regarded employee is interested in taking over the organization. In these cases, outgoing owners are confident that the company will advance with a competent and highly qualified leader. It also requires the new owner to have the skills and talents to embrace the new opportunity.
  • Many businesses are sold to third-party buyers who have no connection with the company except that they like it and want to own it. Selling to a third-party entity is often easier because no personal relationships need tending during the process. It also, however, poses the risk that the organization may be taken in a whole new direction – and one that its former owner might not have chosen for it. 

The status of each of these possible buyers poses unique transaction challenges, so many business owners look for help in both selecting their successor and then executing the consequent succession plan. 


Three Services Facilitate a Successful Business Title Transfer

Selling a business requires an understanding of the details involved, including how to value and price the enterprise, structure the actual sale, eliminate potential liabilities, and safely invest the proceeds to reduce tax exposure. Many business owners, therefore, look to three professional service providers to ensure they are best informed about every component concerning the transaction: an accountant, a lawyer, and a financial planner.

  • The accountant helps you establish a valuation for your business based on its revenues, expenses, size, location, market placement, etc. Their services will clarify corporate information that is critical for both you and your successor, such as the organization’s Seller’s Discretionary Earnings (SDE), which represents pre-tax enterprise income before expenses, and a reasonable multiplier for the SDE, which takes into account the potential risk and outlook for the company’s future. They will also help to clarify expenses, tax implications, and other financial details relevant to the sale and to the buyer. 
  • In most cases, the legal requirements involved in a business sale are complex and beyond the skill set of the company owner. Not only must assets be properly valued but the existence of liabilities must also be thoroughly reviewed. Pre-existing contracts, claims, and corporate agreements must be assessed with an eye on the successor to ensure that all potential liabilities are transferred away from the seller-owner and to the new buyer-owner. The lawyer provides insights and guidance for the process of the sale, from assisting in negotiations to assessing risk allocation between you and your successor to ensuring every step of the transaction has received appropriate due diligence. 
  • A financial planner helps to manage both corporate and personal financial situations to maximize the value of the sale proceeds and reduce exposure to excess taxes. Depending on the corporate structure (LLC, S-Corp, etc.), the proceeds from the sale will impact the seller’s current and future financial decisions. Getting early advice on how to manage those changes will ensure the economic future remains bright after the transaction closes. 

Despite the value offered by each of these three professions, too many small business owners don’t seek them out when the need arises. Research indicates that while many companies do appreciate accounting input, more than half of America’s small businesses do not access legal help when facing legal troubles, and an equal number don’t seek financial advice when dealing with internal money issues. Not relying on  professional assistance when selling a business, especially given the complexity of these transactions, can lead to less than ideal outcomes.


Chesapeake Growth Network (CGN) Provides Comprehensive Services for Any Business Sale

Fortunately for the Chesapeake Corridor, three professionals — attorney Nicholas P. Crivella, CPA Matt Brady, and insurance/investment professional Mike Kelly, Jr. — have united their services under one roof at Chesapeake Growth Network, making it the go-to business sale resource from Bowie to Annapolis. Individually, each offers the best advice and guidance available; together, the trio provides comprehensive support across all facets of the corporate transaction process. 

As a successful business owner, you’ve mastered the specifics of your industry and market sector. Connect with Chesapeake Growth Network’s experts today to learn how you can maximize the value of your company as you sell it and move on to new experiences. And keep your eye on this blog. Next time, we’ll be discussing how to structure asset and stock sales, both in and out of a business sale transaction.

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