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Plan Now for Your Business Succession - By John R. Bullis

Updated: Mar 21, 2023

It is not easy to take the time now to plan for the sale, gift or transfer of your business. Just running the business is hard enough and time consuming. However, meeting with a team (attorney, CPA and valuation expert) now can help position your business for the future. Frequently the meeting with your team will suggest some actions to consider that may increase your profits. It will definitely result in an understanding of what you can do to make your business more valuable later. If you plan to transfer the business to family members, you want to be sure the family members develop the skills and experience to successfully continue the business. Maybe they need to attend some classes, work in different parts of the business or get better acquainted with your customers and suppliers. The tax code has some special provisions for sale of the business to employees. The Employee Stock Ownership Plan can be the buyer in most cases. The business makes retirement plan contributions that are used to buy your ownership (stock). It can be great for the employees and for you. If you plan to sell to an unrelated party, you need a qualified business valuation to be sure the price is fair and reasonable, not too high and not too low. Business Appraisers are better than most Business Brokers to do the valuation. Some Business Brokers will take a listing for whatever price you say, planning for the commission they will receive when it is sold at a lower price. If the listing price is not reasonable, you may not ever get the business sold. The sale can be done in many ways. Some just sell selected or most of the assets. There are special tax rules to consider for sale of assets including depreciation recapture. If it is not a full cash sale with you receiving promissory note payments over several years, the depreciation recapture tax requirements may be a bad surprise. If the business is a corporation, a sale of your ownership (stock) avoids the depreciation recapture problem and gives you preferred long term capital gain tax result. Sometimes the price is reduced a bit on a sale of stock since the buyer will not get a new depreciation expense schedule. Your attorney is more experienced in negotiations and can help avoid problems for you and still get the deal done. You have to understand the goals of the buyer and see it from their eyes. You don’t have to agree to sell now, but the planning is important for the best long term result. Did you hear “The happiest of people do not necessarily have the best of everything; they just make the most of everything that comes along their way.” Author Unknown

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