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  • Lee Henry

"I wish I had known – Potentially avoidable problems selling business owners face"

While hindsight offers clear vision, let's shift the focus to foresight and explore challenges business owners may encounter when selling their businesses and potential ways to sidestep them.

1. Taxes: Facing the reality that you are akin to Santa Claus for the federal government, dealing with taxes becomes inevitable. Unavoidable depreciation recapture at a flat rate of 25% looms when selling, affecting everything you've depreciated. However, long-term capital gains, potentially avoidable, can be eliminated through Section 1202 exemption, provided you plan strategically. Be mindful of the 5-year waiting period for Section 1202 qualification. Estate taxes, though not your concern, can impact beneficiaries. Engaging a proficient estate planning attorney in advance equips your heirs with tools to navigate this issue.

2. Low Multiples: Valuation multiples can take a hit due to avoidable factors. Customer concentration, where a single client contributes a significant portion of revenue, raises red flags for sophisticated investors. Ensure robust employment agreements, including non-compete and non-solicitation clauses. Implementing non-qualified deferred compensation plans with extended vesting periods can act as golden handcuffs, solidifying your team. A well-prepared management team reduces risk, making the business more appealing to buyers. Adopting practices such as tracking and measuring, automation, software utilization, and maintaining a positive cyber reputation can boost business value by avoiding issues that lower multiples.

In conclusion, preparing for the sale of your business at least five years in advance can save money and enhance its value. If you need assistance navigating this process, feel free to reach out. Helping businesses thrive is what we do best.

Disclaimer: We are not licensed attorney, CPAs, or financial advisors. If you need any legal or financial help please contact your trusted advisor.

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