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September 2013
Should I Sell My Business Now?
By Robert Norris

Overcoming Common Objections: Part Two

 

     As we introduced in the last article, the common objections that tend to hold back owners from selling their businesses are usually based upon some combination of the following:

 

·      “The business isn’t worth enough to meet my financial needs.”

·      “The employees (or customers) will leave when they discover I’m trying to sell.”

·      “I will be required to work years for a new owner.”

·      “The sale process will take too long and cost too much.”

·      “Given the tax bite on sale proceeds, it makes more sense to stay, enjoy the cash flow and get paid over time.”

·      “What will I do after I sell and leave the business? This business is my life!”

 

     Now we will discuss the last four common objections that can affect your decision to cash out of your business and move on to the next stage of your life.

 

I Will Be Required To Work Years For A New Owner

     If one of your exit objectives is to leave the business as soon as possible, it is important to make that objective known to your exit planning professional and it will be a prerequisite of any sale. That objective will determine which type of buyer you should seek. There are categories of buyers (“strategic buyers”) who typically do not require the former owner to remain with the company beyond a short transition period—usually no more than a few months—provided your management team is strong and is “tied” to the company by incentive arrangements (“stay bonus”) and non-competition agreements.

 

The Sale Process Will Take Too Long And Cost Too Much

     Cost, of course, is a matter of perspective. But the only way for you to make the determination whether the sale process is too expensive or not is to discuss costs and expenses with your advisors before you hire them. It usually takes from six to 18 months to sell a business. The more you know, the better prepared your company can be for sale. Better preparation on your part can mean less time and expense on the part of your advisors.

 

Given The Tax Bite On Sale Proceeds, It Makes More Sense To Stay, Enjoy The Cash Flow And Get Paid Over Time

     With proper tax planning, Uncle Sam’s cut of the sale proceeds can be minimized so that you are in a better position to meet your financial and personal objectives upon your exit from the business. But planning— and implementation—can take years to be fully effective. Delays in beginning to plan works to reduce time available and can increase taxes.

     As an example, if your company is currently taxed as a C corporation, built in gains are effectively double-taxed upon the sale of your company in the event you sell assets instead of stock. You can avoid this double taxation by converting your C corporation to an S corporation, as long as you wait at least 10 years after the conversion to sell the assets of the S corporation. However, if you are considering selling in 2013, and you converted your C corporation to an S corporation at least 5 years ago, you can avoid the built in gains tax if you sell before year-end.

 

What Will I Do After I Sell And Leave The Business? This Business Is My Life!

     For many business owners, the old “fire in the belly” is gone, but there is nothing to replace it. Many, therefore, hang on to their businesses, willing to accept what they know because they fear that the unknown may be even worse. Yet, many owners don’t know what they will do when they exit. However, exiting a business can end up uncovering new and exciting opportunities for owners to pursue after the sale— some of which may be provided by the chosen buyer.

 

Final Thoughts

     Certainly, the decision to sell the business you created and nurtured is an intensely personal decision. No one is more qualified to know what to do with the rest of your life than yourself, especially when it comes to the decision to sell your business. The fear of the unknown is natural, but you do not have to venture on this journey alone. Seek out a professional experienced in exit planning to help guide you through the process of preparing for the biggest financial event of your life—the sale of your business.

Robert Norris is managing partner at Wishart, Norris, Henninger & Pittman, P.A.
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