5 Key Steps for Business Owners Who Plan to Sell

Five steps can help business owners protect their future, their family and their legacy.

Many business owners rely on their enterprise not only to generate income today, but also to provide for themselves and their family in the future. In fact, it’s not unusual for the business to represent their single largest financial asset.

Despite this heavy reliance, however, business owners often have no exit strategy in the event of their disability, retirement or death, according to the Small Business Administration.1 This leaves their financial security — and that of their heirs — vulnerable to the vagaries of the marketplace.

“Designing an exit strategy today that integrates your estate, retirement and succession plans can help ensure a smooth transition while maximizing the value of your business,” says Julie Weaver, a Wealth Strategist with Regions Private Wealth Management. Here are five steps business owners can take today to prepare for the future and protect their financial security.

1. Know what you want.

Basically, Weaver says, there are three potential types of successors to a business: Family members, partners or key employees, and outside buyers. Every step you take — from how you structure the business today to how you prepare for its transfer down the road — will be based on that choice. However, this is often the hardest decision to make, and ultimately the reason that many entrepreneurs postpone planning their exits. “Most business owners have spent their lifetime creating and nurturing the business, and identifying the right successor often seems an insurmountable obstacle,” she says.

Delaying decisions over transferring your business, however, can come at a hefty price. Under the worst-case scenario, all of your hard work could be lost if you die or become incapacitated without a contingency plan. Looking ahead, the longer you wait, the fewer options you will have to maximize your wealth and properly prepare a successor, ensuring a smooth and sustainable transfer when you’re ready to retire.

2. Have a realistic idea of your firm’s fair market value.

Understanding the true market value of your business is critical to any succession plan. If you expect to pass it on to family members, the Internal Revenue Service will demand a third-party valuation to determine any estate tax liability, and both your retirement and your estate plan will hinge on that number.

If you want to turn it over to key employees through an employee stock ownership plan (ESOP), for example, the company will need an appraised fair market value for the stock. Even if you are planning to sell it to an outside interest, you’ll need to know what the business is worth long before the negotiations begin, Weaver says.

3. Identify potential successors or buyers.

Once you know how you want to transfer your business, the next question is, who will receive it? Many family-business owners would rather just leave it to fate than choose among their kids — but that could be a disastrous mistake. Making the decision now based on your children’s skills and current involvement can head off disputes in the future and ensure the long-term viability of the company. More importantly, it gives you plenty
of time to adequately groom the successor, which often takes more than five years, Weaver says.

4. Consider your estate plan.

First there is the issue of taxes. For 2014, the estate-tax exemption after inflation adjustments will be $5.34 million per person, or $10.68 million per married couple. Everything over that will be subject to a 40% federal estate tax. There are a variety of planning techniques, such as establishing a grantor retained annuity trust (GRAT), that could be used to mitigate taxes while ensuring your legacy.

Even if your business is safely within that tax-exempt range, you need to ensure your spouse and heirs are taken care of. For example, if the business is a partnership, there should be a succession plan in place between the partners that protects the surviving spouse, either through a buy-sell agreement or a restricted stock arrangement.

5. Build a team.

It takes a team to get any business prepared for a smooth transition. A certified professional accountant can provide a deep understanding of your company’s financial data and recordkeeping, while an attorney can draft key documents, such as buy-sell agreements and durable powers of attorney. Your Regions Wealth Advisor can lead this team of advisors to ensure coordination and make sure your financial goals — including your retirement, estate and succession-planning goals — are fulfilled along the way.

Benefits of Planning

Proper exit planning provides business owners several significant financial opportunities:

  • Minimize taxes on a business transfer
  • Take advantage of today’s low-interest-rate environment
  • Increase the business’s pre-transfer value
  • Maximize current laws favorable to attractive transfer strategies
  • Convert the entity’s structure to improve tax efficiency
  • Lower the costs of a transfer
  • Reduce stress, while building confidence in the company’s long-term prospects


Need help planning for your business’s future? Your Regions Wealth Advisor can help you evaluate potential strategies that protect you and your family’s financial security.

¹sba.gov, “Plan Your Exit.”


This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.