TRUST & ESTATE PERSPECTIVES

Are you contemplating or about to sell your business?

Pre-transaction considerations to prepare for life post-sale

You have worked long and hard, built a successful business and have started to think about enjoying the fruits of your labor. You may be asking yourself, now what? Is it the right time to start thinking about passing the reigns, what does that mean, and what should I be considering as I move forward?

The sale of a business, or the transfer to the next generation, is a critical undertaking. Knowing what your planning should entail and who should be working with you to build and execute on that plan is imperative to ensuring your desired outcome. Collaborating with your wealth advisor, tax advisor, and estate planning counsel will be crucial to develop and execute a thoughtful plan. As can be expected, you will most likely have a number of different questions and considerations running through your head, such as what is next on the horizon for me? Will the proceeds from the sale be sufficient to ensure a comfortable retirement? Will you return to work? Will your entrepreneurial side win out with you investing in a new business venture? These are all vital questions you will need answers to. Reaching out to your team of trusted advisors should be your first step in establishing clear and well-developed thinking around these issues.

Corporate structure

Before the sale can take place, review how the business is structured. Do you hold a whole or partial interest? Is your interest comprised of both majority and minority positions? When was the last time you had the business valued? Is there an existing Buy/Sell Agreement in place funded by life insurance? If yes, is it possible to reissue the policies to you individually? What form of cash flow will the sale proceeds provide to you: one-time lump sum, take back a loan, principal and interest payments, or some combination of those or other methods?

Cash flow analysis

While you were running your business, you were in a position to project what your take home would be on an annual basis, allowing you to manage and plan for your personal financial affairs. Once you have sold the business, will the proceeds be sufficient to fund your lifestyle? Have you done a cash flow analysis? Looking at income and expenses both pre and post transaction is imperative to set goals, budget spending and influence your investment strategy and associated risk tolerance. Are there large ticket items the business paid for that you will now have to pay out of pocket? Health insurance, life and disability insurance, vehicles and associated expenses, etc. Did you take a salary and/or take distributions throughout the year? How will you supplement that income moving forward?

Managing your time and your expenses

Often when you run a business, you have a key member of your staff who is busy managing you while you manage the daily business operations. Once you have sold the business, that person who paid your bills, balanced your budget and kept your schedule will be no more. Are these tasks you are willing and able to take on or does it make sense to hire someone to assist you? If you plan to be just as busy post business sale, or if these are tasks you simply do not want to take on, perhaps the latter is the best choice for you.

Wealth transformation

For years, you have focused your efforts on investing in your business and the management of its fiscal health. Now it is time to shift your focus to your own financial well-being and that of your family. The business that has been your largest asset, and one that was almost entirely illiquid, will soon result in a transition to a liquid asset. What are your goals for this liquidity event and the wealth that it will provide? What are the factors you should be considering in developing an investment strategy for your liquidity event? What kind of cash flow do you need it to generate to maintain your standard of living? What is your investment risk tolerance? What types of asset classes are you comfortable with having in your portfolio? It is essential that the proceeds, coupled with your other remaining assets, provide you with the means to accomplish your goals. Close collaboration with your advisory team is essential in thinking through and executing a strategy.

Post transaction estate planning

Just as it is important to develop a plan for the management and investment of the sale proceeds, so to will be the revisions to, and in some cases the development of, your estate plan. Do you have a Last Will and Testament and a Revocable Trust in place? Do you have incapacity documents (Health Care Documents and Power of Attorney)? Does the language of those documents need to change now that you do not own the business? Did you have a separate Durable Power of Attorney for your business that you will not need now? Have you made provisions for your children and grandchildren? Do you have life insurance policies in place? Has your vision for the legacy you wish to leave behind changed in light of this liquidity event? Have you contemplated gifting to your children and grandchildren now or in the near future? Are the appropriate estate planning vehicles in place to facilitate the transfer of wealth to the next generation, strategically use your gift and GST exemptions and to mitigate your estate tax exposure?

This article may ask more questions than it may answer, and for good reason. The purpose is clear, pre and post transaction planning is an essential part of the process when considering the sale and/or transfer of a business. SVB Private and its teams of advisors are here to guide you through the process every step of the way, by providing wealth management, banking, trust and estate, and tax planning services to assist you and your advisors as you chart your next course.

Katie is a Managing Director and Fiduciary Advisor at the Boston office. Prior to joining SVB Private, Katie was a Partner at DesRosiers, Tierney & Sheehan, LLC, and also practiced at Cody & Cody, LLC and Ruberto, Israel & Weiner. Her private practice career concentrated in the areas of estate planning, estate and trust administration, charitable planning, long-term care planning and elder law.

Gerald Baker is the head of Trust & Fiduciary Services and co-head of the Center for Wealth Planning Excellence at SVB Private.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of SVB Private or other members of Silicon Valley Bank Financial Group. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein