Long Term Care Insurance

3 Things to Consider Before Selling Your Business

by Royce Ramey

Are. You. Ready?

For any business owner or entrepreneur, selling your business can be one of the biggest decisions you make. After all, for years, you began each day with a unique purpose and poured your heart and soul into something special to you. Before you pull that trigger, you might consider what life will be like after a sale:

  • How will it feel to forego a future stream of cash flow for liquidity that you likely never had the luxury to have until now?
  • Will you travel and play golf seven days a week, or want to stay engaged in something beyond your business?
  • Do you have children who want to run the business someday?
  • How will the legacy of your business be remembered?

These are all questions from clients I have worked with over the years. Engaging a wealth advisor in advance of a potential sale not only helps you think through these questions but also prepares you financially for life after the transaction.


Three reasons to engage a wealth advisor alongside your tax advisor, attorney, and investment banker before selling your business:

1 – Are you selling for a price that will sustain your lifestyle?

Lifestyle change is one of the toughest transitions an entrepreneur can make. You are accustomed to receiving yearly cash flow from the business to fund your lifestyle wants and needs. However, you will never receive a price that values the company for those cash flows in perpetuity. Instead, you will receive a lump sum upon closing that will require you to pay taxes, transaction fees, and professional fees, leaving you with a set sum of money necessary to maintain your desired lifestyle.

Before you start the process of selling your company, working with a wealth advisor can help you understand if your lifestyle can be sustained with the price you receive.

2 – Do you want to transfer any value of the company to your children?

If you want your children to benefit from a transaction, consider wealth transfer strategies well in advance of a sale. Transferring interest in a closely-held company can benefit both you and your children. While the outcome is not guaranteed, generally, a closely-held company receives what is referred to as a control and marketability discount.

This process allows the transferor to use less of their lifetime estate exemption and to transfer more value to the beneficiary. Additionally, the beneficiary may benefit from any premium above the transferred value from the purchaser in the future. However, transferring too much value to minimize estate taxes could have unintended consequences.

Before engaging in transfer planning, a clear understanding of how a transfer of value may impact your long-term lifestyle goals is extremely important. With careful planning, entrepreneurs solely focused on paying as little estate tax as possible can avoid transferring more than they expected to their children, which could leave them in a deficit to fund their future lifestyle goals.

3 – Are you passionate about philanthropy?

Understanding how any charitable gift affects your long-term lifestyle goals is important. Many entrepreneurs give a tremendous amount of time and money to serve their communities. Often, they wish they could give more but don’t have the means when most of their wealth is tied up in their company.

Planning for the sale of your company is an optimum time to “pre-fund” your philanthropic goals. If you plan to sign a Letter of Intent (LOI), you may be able to donate a piece of your company to a charitable vehicle such as a Donor Advised Fund. Funding your future charitable intent through this method allows you to receive a charitable deduction in the year donated (likely a high-income year with the sale of the business) and not be subject to capital gains tax on that portion donated to charity.

Selling your business is a big decision. Engaging the right team of advisors can make all the difference in the successful outcome of your goals. Most entrepreneurs have one opportunity for a liquidity event. Are you preparing as well as you can and thinking about what life looks like beyond your business?

Royce Ramey, CFA, is Co-CEO of Versant Capital Management and focuses on the long-term vision, strategic planning, and leadership of the firm. His expertise in investment management, portfolio construction, tax planning, wealth-transfer strategies, trust and estates, and family governance helps people navigate their complex financial lives.

DISCLOSURE: For complete information on your tax situation, you should consult a qualified tax advisor. While Versant Capital Management doesn’t offer tax advice, we are familiar with certain tax situations that our clients face regularly. Disclosure: Any tax-related material contained within this document is subject to the following disclaimer required pursuant to IRS Circular 230: Any tax information contained in this communication (including any attachments) is not intended to be used and cannot be used for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting marketing or recommending to another person any tax-related matter.