Triathletes running into the water for their swimAgili’s Davis Barry and Marilee Falco recently wrote an article for Lehigh Valley Business and Central Penn Business Journal, with strategic recommendations for business owners deciding whether or not to sell. Business owners and executives considering the sale of a company have important decisions to make at three different phases: Before Negotiations (the swim), Purchase and Sale (the bike race), and Closing and After (the run).

Before Negotiations

Prior to negotiating the sale of a business, an owner must honestly evaluate their company’s salability and the timing of the sale. Is the business on trend in its industry and is there a likely buyer, or better yet, buyers? How motivated would potential buyers be to purchase the business? Are there direct comparables for the business’s valuation process?

Purchase and Sale (the Bike Race)

What issues should a business owner be prepared to discuss during negotiations for the sale? First and foremost, the owner must have a thorough understanding of his business’s value (i.e., cash flow, growth, margins, assets, liabilities, and intellectual property). The owner should have a firm grasp on the business’s exposure to past (and possibly future) liabilities. In addition, when the seller owns the business property, they should know in advance if it makes good fiscal sense to retain the real estate and lease it back to the purchaser and if that might be an appealing prospect to them.

After Closing (the Run)

Once the business sale has closed, it’s important for the seller to think holistically about their financial future, both professionally and personally. First, the seller needs to determine whether or not they need a new source of income, be it a new job or an investment. And how should they reinvest the proceeds from the sale? Because of the tax savings associated with them, Qualified Opportunity Zones may be a worthwhile investment.

Other more personal planning considerations are health, life and disability insurance — adjustments will likely need to be made. Also, it would be wise to have an estate attorney review and update estate documents upon the sale of the business.

Since business owners often spend years reinvesting company proceeds back into their business, they may need to play catch up on retirement savings. To best take advantage of this windfall, it is important to work with a trusted financial advisor to appropriately invest in a customized and diversified portfolio that aligns with the seller’s long-term goals and objectives. Down the road, cash flow strategy (tax optimization) and possible Roth conversions should be considered each year.

For the business owner, it can be hard to view their company objectively and navigate emotions surrounding the sale of the company they have worked for years to build. Business owners don’t have to do it alone. They would be wise to rely on experienced and trusted advisors, such as a business coach, financial advisor, accountant, and investment banker, among others. By enlisting an expert team, a business owner can be confident that they’ll receive objective, fact-based financial planning and investment recommendations throughout the different phases of the negotiation and sale.