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In many ways, starting a business and providing for your family is part of the American dream. Entrepreneurs forge their paths forward, starting small then building. Sometimes, the business begins to feel like part of the family. However, as time passes and the business grows, selling the company may be appealing. This article discusses what to explore when considering a sale.
Christopher Flanagan
Who Will Run the Business?
Father Time is undefeated; unfortunately, you won’t be able to run your company forever. If you hope to keep the business in the family, you should carefully consider whether any family member(s) would be successful in leading the company to continued profitability
If nobody comes to mind, it may be time to sell to an outsider. With smaller businesses, locating a buyer can be difficult. Locating a buyer can be done via word of mouth, or by hiring a business broker. The broker can help market your business, connecting you with potential buyers.
Preparing the Business for Sale
Just like preparing a house for showings, you should organize your business to be sold. Take steps to ensure that the business is an attractive asset for potential buyers. Making sure your books and records are in order is the best way to do so.
Many family business records are not likely to have been maintained to high standards, making it difficult for a potential buyer to evaluate the business as an investment. Together with a CPA, you should audit financial statements, taking care of any red flags along the way.
Another way to “tidy up” is to ensure the company is current with its tax filings. Check both federal and state tax requirements because they can vary between the type of entity used and the state where the business is located.
The New Boss
There are many reasons to sell the business. If you look at the business as an investment, then you may want to sell it after generating your desired return. Maybe you are ready for retirement, and by cashing out, someone else handles the day-to-day work. In some cases, the buyer of the business will want you and the current management to remain working for a specified time to help with the transition. Other times, the buyer may want you to simply leave to create a new brand for its services and/or products. Many family business owners have an affinity for their employees. Will the new buyer retain or replace them? In each scenario, you should be conscientious about your goals and ensure that the language of the agreement reflects your desires.
Tax Implications
Selling a business will likely generate a taxable gain. The IRS keeps tabs on these transactions, so it is important to keep your books in order and pay the right amount in taxes. Avoid any problems with the IRS and know exactly what goes into your pocket.
These are just a few of the issues you should consider when selling your family business. Each business is unique, and each sale can come with its own wrinkles. Speaking with a professional can help ease the process and achieve your goals.
Christopher Flanagan is an associate attorney at Decker Jones P.C. where he focuses his practice on helping clients with business transactions, considering legal and tax issues along the way.