Business Questions - AZ Business Magazine 2006

The Most Important Questions To Ask When Pondering Whether To Sell Your Business

The Big 8

The most important questions to ask when pondering whether to sell your business


Selling Your Business Questions - AZ Business Magazine Oct/Nov 2006Some entrepreneurs spend years developing a solid business—growing, investing and nurturing their enterprise into a successful endeavor. Why then, would less effort be put into plans to sell a business? This may sound strange, but according to financial professionals, it happens all the time. Failing to structure your exit can cost in the form of tax penalties, lower profits and the potential for legal action.


There are eight issues to consider before selling your business:

1. Is your company structured to be tax efficient and easily sold? “Many businesses outgrow their initial founding entity,” says Carleen Shilling, a tax partner at Eide Bailly. “Having an entity that’s not tax efficient will cost a business owner substantially when they have to pay taxes on their gains.”

2. Does your business make a favorable presentation? Are your finances clear, complete and accurate? “Poor organization can cause a potential purchaser and advisors to label the business as poorly managed and prompt them to start looking for problems,” notes Michael Walling, vice president of mergers and acquisitions for R.B. Gold & Associates.

3. Have your advisory team evaluate plans to sell your business early on. Walling says business owners should begin planning the sale of their business up to three years before they plan to sell. “This is a major event in your life and your financial team should be on board at the very beginning,” says Shilling. Tax implications, legal obstacles and long-term financial requirements should be planned and executed with authority.

4. Have you considered all the tax consequences involved in the sale of your business? While the price may seem like the most important figure you are dealing with in the sale of your company, another figure that is paramount is the amount you will have after taxes are paid. Failure to factor in tax consequences prior to the sale can be costly and, in many cases, irreversible. One of the most common mistakes business owners make involve company real estate. “You never want to be in a situation where you’ve just sold a real estate property for cash and are then wondering if you can defer any taxes by reinvesting the proceeds into another property,” Shilling adds. “Unfortunately, in a normal sale transaction, once the seller gets the cash, it is too late for tax planning.” To defer taxes, a “like-kind” exchange must be executed in line with IRS codes and done prior to such sales.

5. Who are your potential buyers and what’s your sale price? Business owners should determine their goals for the future and determine the most beneficial sale situation. Grooming a successor, having key managers and raising the profile of your business are key, too. “The ideal situation is to attract a number of potential purchasers and initiate an auction,” Walling adds.

AZ Business Magazine October November 20066. How is your timing? Business owners usually can increase the price if they carefully plan the sale and time it just right. “If the business is expanding at the time of the sale, the owners are likely to get a better price than if the company has reached a plateau or is declining,” Walling says.

7. What will you do with your life after the you sell? Will you retire, start another business or reinvest in other entities? All factors should be considered before you sell. Age and lifestyle are other thinking-points. 8. Be prepared for the emotions involved. “Regardless of your age, selling a business can be more emotional than people realize,” Shilling notes. “It is important to be prepared for this huge decision and know that it isn’t always easy to do.”


Arizona Business Magazine Oct/Nov 2006