Selling a Business What to decide before, at and after the close.
Most owners plan the sale and not the money. Before the letter of intent, decide how the deal is structured for taxes, how you’ll be paid and what the money needs to do. At the close, have accounts and a written plan ready. In the first year after, rebuild the estate plan and invest on purpose.
An owner’s guide from ASYMMETRY® Business Exit Planning.
The number that matters isn’t the price. It’s what you keep, and what it has to do.
Your costs and taxes will differ.
Decide while you still can.
Once a buyer’s letter of intent is signed, many of these are hard or impossible to change.
- How the deal is structured for taxes.An asset or stock sale, an installment sale, the small-business stock exclusion, charitable options. Your CPA and attorney settle the details, or we can introduce you to ours. The choices have to be on the table early.
- How you’ll be paid.Cash, a note, an earn-out, the buyer’s stock or rollover equity. Each carries a different risk after the close.
- How the company is owned.Changes to ownership, entities and trusts are simpler before a price is set.
- What the money needs to do.The income you’ll need, what you want to give, and how much of a decline you could live with.
- Your role after the sale.Staying on, a consulting agreement, a non-compete. Each changes your income and your time.
Have the plan ready before the money arrives.
The worst time to decide what to do with the money is the week it lands in your account.
Accounts open.
Opened in your name and ready before the wire, so the money has somewhere to go.
The tax set aside.
Estimate what you’ll owe and keep it out of the market until it’s paid.
A written plan.
How the money will be invested, over what time, and how much of a decline it’s built to live with.
The first loss is different.
Before the sale, the business could earn a loss back. After it, the money has to.
The bigger the loss, the bigger the gain it takes.
| Loss | Gain to get back | |
|---|---|---|
| 10% | 11% | |
| 20% | 25% | |
| 30% | 43% | |
| 50% | 100% | |
| 75% | 300% | |
| Yours25% | 33% | |
On $21 million, a 25% decline is a $5.3 million loss, leaving $15.8 million. Getting back to $21 million takes a 33% gain.
The estate plan
Documents written for a business now need to fit a balance sheet of cash and investments.
Insurance and asset protection
A sale makes you more visible. Titling and liability coverage should catch up.
Income
The paycheck is gone. The portfolio has to replace it, through good markets and bad ones.
Giving
What you want to give, to whom and when, decided on purpose rather than at year end.
What owners ask about the money side of a sale.
What should I do with the money after selling my business?
Don’t rush it. Have accounts open and a written plan before the money arrives, and set aside what you’ll owe in taxes. Then invest on a plan that starts with the income you need and how much of a decline you could live with, because there’s no business left to earn a loss back. Rebuild the estate plan around the new balance sheet in the first year.
When should I start planning the sale of my business?
Twelve to 36 months before you expect to close, and before you sign a letter of intent. How the deal is structured, how you’re paid and how the company is owned are hard to change after that.
Do I need a financial adviser before I sell?
Your banker or broker works on the sale, and your attorney and CPA on the documents and taxes. An adviser who looks at the whole decision for you, before the terms are set, can help you see what the price means after costs and taxes, and what the money will need to do.
What if part of the price is the buyer’s stock or an earn-out?
Then part of what you’re paid depends on another company’s future. The buyer’s stock is a large position in one company, often one you can’t sell for a while, and sometimes it can be hedged. An earn-out depends on results you may no longer control. Both belong in the decision before you sign.
How quickly should I invest the proceeds?
There’s no single right pace. What matters is a written plan before the money arrives, so the pace is a decision and not a reaction. Some owners invest over months, and keep part in cash while the estate plan is rebuilt.
From ASYMMETRY® Observations, for owners.
- After Selling a Business, the Real Work Begins
- The Biggest Portfolio Mistake Business Owners Make After Selling a Company
- The First Loss Is Different After a Liquidity Event
- The Operator-to-Investor Transition Most People Miss
- Volatility Becomes a Liability After a Triggering Event
- The Exit-Strategy Playbook
Talk to us before you sign.
We’ll look at the whole decision with you: the price, how it’s paid, the taxes, and what the money needs to do after. Then we’ll tell you what we’d do.
If you write, I’ll read it myself.
Mike Shell, Founder & Chief Investment Officer
Related: ASYMMETRY® Portfolio Hedging, Private Wealth Management and Sequence of Returns Risk.