If you are in the process of selling your business, you most likely have an idea in mind about how life will be after the sale. While vacations, retirement, home projects, or new ventures are exciting prospects to consider, it is important to remember that you have some key responsibilities immediately following the sale.
From in-house issues, like training and transitions, to personal matters, like tax planning and diversifying, there are many things to take care of in the days and weeks following a sale.
You’ve worked hard to build a successful business, and it’s understandable that you’d want to see its continued success, even after a change of ownership. Most likely, the future of the business will rely on your transition of ownership. While you may have had visions of signing the deal and heading to Tahiti, the buyer may have had other plans in mind.
It is best to develop a transition plan before you close on the business, so that each party knows what to expect once the sale is final.
Every business, and its operational structure, is unique, so your transition plan will be unique as well. Consider the role you play in the day-to-day operations of your business. Will these responsibilities fall on an existing employee, and has that employee already been trained? Does the new owner plan to take on your daily tasks? These are important questions to ask before the sale of the business takes place.
To ease the transition, it is best to ensure that existing employees are cross trained, should they need to take on a different role under new ownership. It is also wise to create a document detailing the tasks required of you on a daily basis. This could include opening and closing the business each day, how customers are on-boarded, and how work flow is documented.
Some transition periods are short, only a few days or weeks, but others can last much longer. In some cases, an owner is asked to say on long term after the sale. This is more commonly seen in larger businesses, where investors or private equity firms acquire the company. Often, in these situations, the owner has a much more limited role in the business, and will remain onboard until an experienced replacement can be found.
Secure & Retain Customers
As you plan for the sale of your business, you will also want to consider the role you played in securing and retaining customers. Were you the primary point of contact and relationship builder for your customers? If so, you’ll likely be asked to remain with the business in some capacity as it transitions to new ownership.
If possible, it is best to begin transitioning those relationships to a key employee before you place your business for sale. This will create a greater confidence in the new owner and maintain customer satisfaction in the process.
Review Key Employee Details
In addition, your buyer will want to know the intentions of key employees. While it’s true some new owners may want to hire new employees from the start, most want to keep well-trained staff through the transition and beyond. This gives them the ability to take on learning the new business, without focusing on filling vacant positions.
Some transition plans call for existing staff to sign employment agreements, while others request the previous owner to step in and fill any vacant positions until replacements can be found. If possible, discuss all of these factors with the new buyer before the sale is closed, to agree on a transition plan for all parties involved.
Diversify Your Proceeds
With the sale of your business comes the influx of funds, and it is critical to determine how to protect these funds. Whether you receive cash or stocks at the closing table, consider working with an experienced financial planner to ensure your money is thoughtfully taken care of.
Consider diversifying your proceeds. Depending on the market and economy, you may want to invest in mutual funds, real estate, or money market accounts. If you received stocks in the sale of your business, work with your financial planner or stock broker to determine a stock strategy. Take these actions to protect your money as soon as possible, so that your proceeds last well into the future.
Consider Tax Implications
You will also need to consider the tax implications of your sale, and work to minimize your tax burden. Consult a tax lawyer to ensure the contributions from the sale and the transaction itself minimize tax implications.
In some situations, prepaying state and local taxes could be beneficial as well. Many financial planners and tax experts also recommend maxing out IRAs and other retirement contributions after the sale of the business, and charitable donations benefit both the donor and the recipient.
Again, it is recommended that you seek professional advice on how to best minimize taxes after the sale.
Develop a Family Plan
You likely grew your business to provide for your family, and after its sale, you should create a plan to provide for the future. Consider the unique needs of your family, now and later, as you create your plan. If you have young children, you may want to establish a 529 college savings plan, or increase contributions to an existing plan.
Families with adult children may want to consider gifting, which can be a tax-free way to begin distributing an estate. Regardless of age or family structure, be sure that you have a will in place, including up-to-date beneficiaries, and a detailed living will in the event of an emergency.
Transition & Financial Planning
Finalizing the sale of your business does not immediately remove all responsibility. Before you sign the closing documents, work with the new owner to develop a transition plan. Create easy to understand operating procedures, and be sure employees are trained in different aspects of the business. If possible, transition your duties and customer relationships to qualified employees before the new owner takes over. The more you plan for, the easier the transition.
You will also want to take the time to develop a financial plan. Work with experienced financial and tax experts to determine how to protect your money and minimize taxes. Most importantly, create a plan for your future. Whether you need to support a young family or save for your retirement, having a financial plan in place—and sticking to it—will ensure that the investment of time and money into your business will pay off for years to come.