A sale of a business is a complex and emotionally significant event. It requires a thoughtful, long-term strategy that addresses not only the business’s financial health but also the family’s legacy and future well-being. The below illustrates just some of the many considerations when thinking about and planning for the sale of your business.
Part 1: Corporate Planning
A potential buyer will look at your business through a specific lens… can the future owner maximize their return on investment with your business? The more you can demonstrate a well-run, scalable, and resilient business, the higher the valuation and the smoother the transaction.
1. CORE BUSINESS HEALTH: MAXIMIZING VALUE
A potential buyer will most likely first focus on the fundamentals. The goal is to present a business that is not only profitable but also poised for continued success under new ownership.
- Focus on Revenue and Margins: A buyer is most interested in a business with a strong history of consistent growth in revenue and healthy profit margins. You should have at least three years of clean, verifiable financial statements, preferably audited, that prove this trend.
- Diversification of Products: A business with a diversified portfolio of products or services is less susceptible to market fluctuations and consumer trends. Buyers will look for a broad base of offerings that can withstand changes.
- Supply Chain Resilience: A buyer will want to know that the business can operate smoothly without being overly dependent on a sole source of supply. Diversifying your supply chain, if possible, can give a buyer confidence that the business can be moved or scaled without disruption.
- Handling Shocks: Be prepared to articulate how the business has successfully navigated economic shocks, such as inflation, supply chain disruptions, or staffing challenges. This demonstrates resilience and strong management.
2. MITIGATING RISK: ELIMINATING OBSTACLES
Every business has risks, but a prepared seller has identified and addressed them to minimize their impact on the sale price.
- Customer Concentration: A major risk for any business is an over-reliance on a single customer or a small group of customers. This concentration can significantly de-risk the business for a potential buyer. If feasible, work to diversify your customer base before a sale.
- Recurring Revenue vs. Cyclicality: Buyers value stability. A business with a high percentage of predictable, recurring revenue (e.g., long-term contracts, subscriptions) is more attractive than one with highly cyclical or one-off sales.
- Potential Liabilities: Conduct a thorough review of all potential liabilities, including outstanding lawsuits, compliance with ERISA regulations, environmental issues, or pending regulatory actions. It is critical to address these proactively or at least have a clear plan for how they will be resolved.
- Good Records and Accounting Practices: It is vital to ensure all financial and legal records are meticulous and up to date. This includes tax returns, profit and loss statements, balance sheets, and all legal documents. A disorganized data room is a red flag that can derail a deal. Buyers will conduct an extensive due diligence process, and the faster and more accurately you can provide the requested data, the better.
- Systems and Processes: Related to the prior bullet, investing in impactful technology that can allow you to grow and expand margins can be a wise decision before selling a business. Modern, scalable systems prove that the business is well-managed and can handle future growth without needing significant capital investment from the buyer.
- Deep Bench: Buyers will be concerned about “key man risk,” where the business’s success is tied to a single individual, particularly a family member. It is essential to show that the business can run successfully without the day-to-day involvement of family members or any one individual. A deep bench of talented, non-family employees can significantly increase buyer confidence and valuation.
3. IDENTIFYING THE RIGHT ACQUIRERS
Not all buyers are the same. A well-prepared seller understands who the most logical and fitting owner for their business is.
- Strategic vs. Financial Buyers: A strategic buyer is a company in a similar or complementary industry, often looking to expand or gain a competitive advantage. A financial buyer is typically a private equity firm or a family office looking to acquire a well-run business, optimize its operations, and sell it for a higher price later.
- Industry Trends and Multiples: Understanding current industry trends and valuation multiples (the ratio of a company’s value to a financial metric like EBITDA or revenue) will help you set a realistic asking price and justify your valuation.
- Post-Sale Desires: Does the seller want to be involved in the business post-sale? Do you want certain employees to remain in the business for a fixed period? Is it vital that the acquirer keep the company in the same physical space? Getting answers to questions like these before you engage buyers can point you in the right direction and ensure the transaction aligns with your family’s legacy and values.
Part 2: Personal Planning
The sale of a family business can be a life-altering event. It is not only a financial transaction, but also an emotional one that may change family dynamics, identity, and purpose. Planning for the “post-sale” life is just as critical as preparing the business for sale.
1. TAX AND ESTATE PLANNING
- Taxation: The sale of a business has significant tax implications. Planning here is essential, and the earlier you start, the better the outcome. A pre-sale area of focus is entity type. In certain industries there can be significant tax advantages to switching to a C-Corp to utilize capital gain exclusion through Section 1202 - Qualified Small Business Stock (QSBS). This exclusion can potentially be maximized through pre-sale gifting, discussed below. Certain states also recognize QSBS planning, for additional state income tax mitigation.
- Estate Planning: There are many strategies available to minimize or eliminate estate taxes. Executing gifts well before a sale allows you to transfer assets, often at a discounted value, before expected growth. At realization, any liquidity resulting from the sale of gifted assets flows directly into an irrevocable trust, and those dollars are exempt from estate tax. If structured correctly, this strategy can create a legacy for future generations while also potentially reducing estate tax liability. Additionally, clients who are charitably inclined can take advantage of other planning strategies that can serve as powerful tax-efficient tools.
2. PERSONAL PLANNING
- How Much Money Does the Family Need? Before a sale, you should determine the after-tax proceeds required to fund your family’s future spending goals. An advisor can help you project cash flow and create a post-sale financial projection to ensure your new wealth can support your desired lifestyle for generations.
- Investing the Proceeds: A liquidity event of this size requires a well-thought-out investment strategy. The focus shifts from managing a business to managing a large, liquid portfolio. A financial advisor will help you with investment strategy, risk management, and allocation to ensure the proceeds support your family's lifestyle and new legacy for generations to come.
- How Will You Spend Your Time? The sudden freedom from the day-to-day demands of running a business can be jarring, so it’s important to think about your new purpose. Will you focus on philanthropy, new business ventures, or personal hobbies? Begin these discussions early to create a shared vision for the future.
Conclusion
This memo is a starting point for a complex and important conversation. The key takeaway is to be proactive. The more you prepare, both the business and the family, the more control you will have over the process and the more successful the outcome will be.
Preparing for the sale of a business is one of the most consequential decisions a business owner will make, both financially and personally. At Wealthspire, we specialize in guiding owners through this journey with clarity, confidence, and care. If you’re considering a sale or simply want to understand how to best position your business and family for the future, we invite you to reach out. Our team is here to help you explore your options, develop a tailored strategy, and ensure your legacy is protected for generations to come.
Wealthspire Advisors is the common brand and trade name used by Wealthspire Advisors LLC and its subsidiaries, separate registered investment advisers and subsidiary companies of NFP Corp., an Aon company. © 2025 Wealthspire Advisors
Please Note: Limitations. The achievement of any professional designation, certification, degree, or license, recognition by publications, media, or other organizations, membership in any professional organization, or any amount of prior experience or success, should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if Wealthspire is engaged, or continues to be engaged, to provide investment advisory services.
Registration of an investment advisor does not imply that Wealthspire Advisors or any of its principals or employees possess a particular level of skill or training in the investment advisory business or any other business.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This material should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The information provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use.
Wealthspire Advisors and its representatives do not provide legal or tax advice, and Wealthspire Advisors does not act as law, accounting, or tax firm. Services provided by Wealthspire Advisors are not intended to replace any tax, legal or accounting advice from a tax/legal/accounting professional. The services of an appropriate professional should be sought regarding your individual situation. You should not act or refrain from acting based on this content alone without first seeking advice from your tax and/or legal advisors.
Certain employees of Wealthspire Advisors may be certified public accountants or licensed to practice law. However, these employees do not provide tax, legal, or accounting services to any of clients of Wealthspire Advisors, and clients should be mindful that no attorney/client relationship is established with any of Wealthspire Advisors’ employees who are also licensed attorneys.
