Tax and Estate Preparation Before a Sale

As part of your exit plan, it is critical to prepare for an eventual liquidity event from a tax and estate planning perspective. Consider the following planning measures to help you secure the best and most efficient transaction:

Sale

Company Tax Planning: Analyzing and implementing
appropriate organizational and structural changes can
radically affect the ultimate value of a sale if they are
put into place many years before a transaction takes
place. For example, most middle market sellers will greatly benefit from converting their C corporations to S corporations, but only if the conversion is done many years in advance of a potential transaction. Since many companies retain outside accountants only for tax preparation, many middle market owners have never worked with anyone on transaction planning and opportunities available for longer-term value creation. Like any other field, all accountants are not created equal. Consulting with an accountant that has significant M&A experience well in advance of a transaction will likely yield significant increases in post-tax value.

Personal Tax Planning: While evaluating the company’s tax status, business owners considering a sale should simultaneously consult with an experienced deal accountant to evaluate their personal options for maximizing post-tax value. There are a variety of tools that can be used to defer or eliminate tax liability, but they need to be planned for well in advance.

Estate Planning: Since mortality is a subject that many hard driving entrepreneur owners often don’t want to discuss, I regularly talk to business owners that have highly valuable businesses, but have neither taken steps to ensure that their families are protected in the event of catastrophe, nor taken advantage of estate planning tools available to increase the value realized in a transaction. Business owners thinking of a sale should consult with a financial planner and/or estate planning professional well ahead of a potential transaction.

Michael Schwerdtfeger’s eBook “The Inner Workings of a Deal: Tips for a Successful Transaction” is now available for download on his website. Get your free copy here: http://mbsmergers.com/downloads/ 

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