Based on decades of research with successful business owners, almost all want to maximize their family wealth when they sell their companies. There are a few exceptions that are usually ideological. If you are planning on one day selling your company and want to maximize the monies your family receives, presale planning is essential.
There are two types of presale planning. There is presale corporate planning and presale wealth planning.
Presale corporate planning entails taking actions to prepare the company for sale. According to Joshua Bodenstadt, CPA, partner in charge, San Diego, at Duffy Kruspodin (DK), “To get the highest price for a company, business owners need to ensure their companies are most attractive. Depending on the company, there are different ways to accomplish this goal. For example, ensuring that the financial statements effectively communicate the company’s value is essential. We often help business owners provide financial statements that best reflect the financial status of a company.”
Along the same lines, getting a formal and comprehensive valuation can be instrumental. “There are various ways to value companies,” says Thane Kelton, CPA, partner at DK. “Business owners have to work with their valuation specialist so that the results best reflect the company’s worth.”
If you’re considering selling, you need to ask yourself, “What steps can you take to best prepare your company for sale?”
While a solid percentage of business owners engage in some form of presale corporate planning, a much smaller percentage engage in presale wealth planning. Often business owners get so wrapped up in the sale, they miss a significant opportunity to become wealthier by legally avoiding taxes.
According to Homer Smith, director of the DK Family Office Practice and co-author of Making Smart Decisions: How Ultra-Wealth Families Get Superior Wealth Planning Results, “There are all sorts of taxes that can often be minimized when business owners sell their companies. Many of these companies have a very low basis leading to potentially large capital gains taxes. We regularly work with family businesses and help them lower and, in some cases, eliminate the capital gains taxes on the sale. There are also ways to minimize estate taxes for many of these business owners. What’s usually smart is to start pre-sale wealth planning as soon as you know a sale is likely.”
So, you also need to ask yourself, “What steps can you take to mitigate or eliminate the taxes on the sale of your company?”
It’s generally wise to do both types of presale planning simultaneously. For many business owners who do not engage in presale wealth planning, there are possible post-sale wealth planning solutions.
“By working closely with our business owner clients regarding the sale of their companies, we’re able to ensure they walk away with the most profit possible, based on their personal goals,” says Derek Hess, Partner at DK. “We do everything we can to make sure our clients are introduced to the proper experts, so they can achieve optimal results.”
Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs and select professionals.
