INTRODUCTION
The sale of a business is a unique event in the life of a business owner. Selling a company built on years of hard work can create a strong sense of loss for the owner; therefore, deciding whether to sell or retain the business is often difficult.
The Thigpen Group can help business owners navigate this decision through a methodical analysis to determine the best course of action.
REASONS TO SELL A BUSINESS
Some of the most common reasons business owners choose to sell include:
Desire for Personal Liquidity
For many business owners, the majority of their wealth is tied up in the business. Selling provides an opportunity to convert business assets into cash, allowing for diversification and financial security.
Age and Health
This is the most common reason for selling a business. Many owners do not consider this possibility early enough, and when age or health issues arise, they must suddenly face the need to sell.
Anxiety Over Liabilities and Risks
Owning a business often comes with personal obligations and liabilities, such as:
- Personal guarantees on business loans.
- Payroll tax obligations.
- 401(k) and ERISA compliance risks.
- Environmental liability concerns.
These risks can create financial and emotional stress, leading business owners to seek an exit.
Need for a Change
After years of managing pressure and uncertainty, some owners feel burnt out and ready to pursue other interests or retire. Selling the business can provide the freedom to explore new opportunities.
WHY OWNERS SHOULD NOT WAIT UNTIL A FORCED SALE
A key to maximizing the value of a business sale is selling before being forced to do so. Waiting until financial difficulties, health issues, or personal pressures force a sale can result in accepting a low-value offer or poor deal terms.
BUYERS ARE USUALLY MORE EXPERIENCED THAN SELLERS
For many business owners, selling a business is a once-in-a-lifetime event. In contrast, buyers are often experienced investors or corporations that have purchased multiple businesses before. This knowledge gap can put sellers at a distinct disadvantage, making it crucial to work with experienced advisors throughout the process.
THE BUSINESS SALE AND PERSONAL FINANCIAL PLANNING
Since a business interest is often an owner’s largest financial asset, personal financial planning must be integrated into the sale process. Business owners must consider:
- Will the after-tax proceeds from the sale support my desired lifestyle?
- What salary or financial support will I need after the sale?
- How will I obtain health insurance once the business is sold?
- Will my personal expenses increase without business deductions?
Proper financial planning before the sale can help ensure a smooth transition and financial stability post-sale.
THE THREE PHASES OF A BUSINESS SALE
Phase I: Letter of Intent (LOI)
The Letter of Intent (LOI) outlines the general terms of the sale. Though non-binding, once the LOI is signed, making major changes later becomes difficult.
👉 Tip: Consult a business attorney before signing the LOI to ensure terms are favorable.
Phase II: Negotiating & Executing the Definitive Agreement
The Definitive Agreement is a detailed legal contract drafted by attorneys. Key terms include:
✅ Purchase price & payment structure.
✅ Closing date.
✅ Representations & warranties.
✅ Indemnity provisions (seller’s liability after the sale).
✅ Non-compete agreements & consulting arrangements.
👉 Tip: Many sellers focus only on the purchase price, but indemnity provisions (which allow buyers to claw back money after the sale) are equally important. Sellers should negotiate to limit indemnity risks.
Phase III: Closing the Sale
At closing:
✔️ Legal documents are signed.
✔️ Funds are transferred to the seller.
✔️ The buyer takes ownership of the business.
After closing, the only remaining obligations are any indemnity provisions that allow the buyer to recover funds under certain conditions.
METHODS TO STRUCTURE A BUSINESS SALE
Stock Purchase
- The buyer purchases stock in the company.
- Typically favorable for the seller (lower taxes).
- Buyers may prefer other structures due to liability risks.
Asset Purchase
- The buyer purchases specific business assets instead of stock.
- Often preferred by buyers for tax benefits.
- May create a higher tax burden for the seller.
Mergers
- Used when the buyer is a public company.
- Seller receives stock in the acquiring company instead of cash.
- More common for large transactions.
👉 Tip: Each structure has different tax consequences. Sellers should consult a tax advisor before finalizing the deal.
PLANNING FOR A SALE WELL IN ADVANCE
A successful sale requires careful planning. Business owners should:
Organize Financial Records
Buyers prefer businesses that are well-documented and financially organized. This includes:
📌 Clean financial statements.
📌 Up-to-date tax returns.
📌 Well-maintained employee records.
Consider Gifting Ownership to Heirs
Before selling, an owner may want to gift business shares to children to reduce estate taxes.
👉 Tip: Ownership transfers should be planned well in advance of a sale for tax efficiency.
CONCLUSION
Selling a business is a highly emotional and complex process. Business owners benefit greatly from working with professional advisors to:
✔️ Manage emotions & expectations.
✔️ Protect their interests from experienced buyers.
✔️ Ensure the sales proceeds support long-term financial goals.
✔️ Negotiate key deal terms (LOI, definitive agreement).
✔️ Reduce taxes on the transaction.
The Thigpen Group can assist business owners in both selling their business and managing the sale proceeds to achieve their personal financial goals.
This article is for informational purposes only and does not constitute an offer or solicitation for any transaction. The information provided is not legal, tax, or investment advice. For professional guidance, consult an attorney or tax professional.
Investment advisory services are offered through CWM, LLC, an SEC Registered Investment Advisor. Carson Partners, a division of CWM, LLC, is a nationwide partnership of advisors. The views in this article do not necessarily represent those of CWM, LLC. Information is based on sources believed to be reliable; however, accuracy cannot be guaranteed.
