Three Key Steps Every Business Owner Should Take Before Selling

By CJ Blassick, CFP®, Wealth Management Director

For business owners contemplating a sale in the next six to eighteen months, the time to start planning is now, especially considering the current economic environment. Valuations generally remain quite high, and with interest rates poised to start declining, the latter part of 2024 may be an opportune time.

Preparing for an exit typically takes much more time than business owners anticipate.  It usually takes at least six months (if not considerably more) to get everything in order to look as attractive as possible to a potential buyer and achieve the best possible sale price. In addition, sophisticated estate planning (such as the creation of trusts to facilitate wealth transfers) and tax strategies related to the sale of a business can take several months to complete. 

With the looming “sunset” of the estate and gift tax exemption amount, which will be cut in half as of January 1, 2026, unless Congress acts, there is even more incentive for business owners to start planning now if a sale is being considered in the near term.

With that in mind, below are three key considerations every business owner should contemplate as they plan for a liquidity event:

First and foremost, don’t go it alone. Selling a business is a complex undertaking. It is critical to have an experienced team of advisors supporting you throughout the process. Gathering that team should be your first priority.  Below are the members you need:

  • Accountant: A CPA who is experienced in business transactions is essential. The right accountant will be able to provide recommendations on how to structure the business to best facilitate a sale and achieve a tax-efficient outcome. As detailed below, it can be beneficial to restructure a business as a C-corp because of its significant tax advantages. An accountant can also help predict the tax implications of selling a business, as well as provide guidance on the structure, as most business sales don’t involve one lump payment.
  • Attorney: It’s critical to have qualified legal counsel representing you throughout the sale of your business. A good legal team will help ensure the appropriate documentation is in order, such as articles of incorporation, capitalization tables, and tax and estate planning vehicles. Your attorney will coordinate with the purchaser’s counsel to make sure the transaction is properly constructed and results in the best possible outcome.
  • Financial Advisor: With the expectation of a significant financial liquidity event at the time of a sale, business owners should seek the advice of a financial advisor who can help them develop a comprehensive financial plan that capitalizes on new opportunities presented by an influx of wealth. A financial advisor can guide you through everything from managing cash flows to optimizing portfolios on a risk-adjusted basis to evaluating private investment opportunities. Make sure you have an experienced financial advisor in your corner who can explore the multitude of new wealth planning strategies available to you.

As mentioned above, business owners should consider creating a C-Corp in advance of a sale, as this can help avoid the trap of double taxation. Instead of a business owner being taxed once as an individual and again as a business, the creation of a C-corp means that only the business is taxed, and not the owner. Doing this can result in significant after-tax savings.

Another way to avoid double taxation on the sale of a business is to issue stock (such as to business partners, key employees, or family members). Similar to the scenario above, only the stock itself is taxed at the time of a sale, and not the business.

Another benefit of creating a C-corp is the ability to take advantage of the Qualified Small Business Stock (QSBS) exclusion. This provides business owners with the opportunity for a tax exclusion for some, and potentially all, of the gains realized on the sale of stock. By leveraging the QSBS exclusion, business owners that qualify can achieve significant tax savings. 

For business owners who want to avoid the possibility of a significant increase in federal estate tax, assuming the current exemption amount sunsets, they are advised to take steps now to ensure a business sale is complete before January 1, 2026.

To reiterate, the key to a successful exit is to lean on those who’ve led other business owners through the process successfully.

Contact Certuity to learn how we can help you prepare to sell your business.