Conventional wisdom dictates the most important decision a business owner will make is hiring the proper advisory team to help with a sale. A good group of trusted advisers often includes an accountant, a merger and acquisition adviser, a business advisory board (or board of directors), a business attorney, a private equity company adviser, an investment banker, a commercial banker and a personal wealth management team.

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But even experienced advisers can overlook some longer-term issues because of their monumental focus on closing a sale. For retiring small business owners, mistakes tend to fall into five main categories:

  1. Not taking into account how the income taxes of additional assets be distributed

For example, if a small business has a “key person” insurance policy or a buy/sell agreement utilizing life insurance paid by the company, what will happen after a sale? Depending upon how the policy is titled, there may be income tax consequences to distributing the value of the policy to the owner.

Owners must also have a strategy for dealing with the retirement assets already accumulated, such as a 401k, Simplified Employee Pension Plan (SEP) or Employee Stock Ownership Plan (ESOP). Will the assets be rolled over or distributed in some other tax-advantageous fashion?

  1. Not understanding future living expenses

Business owners are in tune with their own budgeting, but don’t always account for how their previously expensed items — such as an automobile, cell phone or home office space — will be covered after the sale.

  1. Not understanding income taxes associated with different sources of income

Business owners have accumulated wealth in various vehicles (401k and IRA plans, cash from the sale, personal savings, life insurance, asset equity and investments). It is important to align the income sources with their projected income tax consequences to create tax efficiency.

  1. Overlooking lifelong objectives

Building and operating a business can fully occupy the life of a business owner, especially as he or she prepares the company for sale. It’s important for the owner to step back and determine why they are retiring and what they want to do next. They must ask themselves, “What will retirement for me look like? What if I change my mind and want to get back in to this industry or something else? ”

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The business owner needs to have an idea of how to align their financial resources with their new objectives, accommodating for lifestyle, legacy and desired social impact.

  1. Keeping family up to speed

It is important for family members of the seller to understand how the sudden realization of wealth will be handled. Many business owners put all life efforts and earned money back into the company. When they sell, chances are they’re now going to have a lot of accessible financial resources at their disposal. And if they have a spouse and children, setting expectations and developing an understanding of how that money will be used, will go a long way toward family happiness and harmony.

If you decide to retire and sell your company, avoid tunnel vision and remember to work with your advisers and look beyond the transaction to help maximize potential benefits for both the short and long run.


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