Overview
Creating a comprehensive checklist for selling a business is essential for ensuring a smooth transition when transferring ownership to your management team. By following a well-structured plan, you’ll have better control over the process, making it both timely and efficient.
One of the key considerations when selling your business to employees is to carefully plan the timing of the sale. This will allow you to align the process with your personal and financial goals.
When selling your business to a key employee, it’s crucial to establish clear payment terms. This involves determining whether the transaction will be structured as an asset sale or a stock sale, which can significantly impact the taxation of any profits. By setting up the terms beforehand, you’ll maintain control over potential tax implications and avoid surprises down the road.
In summary, creating an effective plan for selling your business involves careful attention to detail and thorough execution of each step. By considering the timing, terms, and method of selling, you’ll have greater control over the process and increase the likelihood of a successful transition to your management team.
Transcript
The three T’s of selling their company
to management are timing terms and taxes.
First, on the timing. You are in complete
control when you want to transfer
the ownership. And typically you’ll do that
when it’s confirmed to you that you’re going to be financially
independent of the business once you
receive the proceeds from the change of
control transaction.
The second is the terms which would be:
“how are you going to get paid”, “whether
it’s going to be sale a stock profit
interest, some form of deferred
compensation”. And the third is taxes. You
can determine if you want to elect
installment payment method on the
proceeds that are coming to you in
a seller note or to accelerate and pay
capital gains. You can also
receive distributions of profit and then
ultimately non-qualified deferred
compensation benefits that would be
subject to ordinary income taxes. You could
time that so that it perhaps would
coincide with when you defer
your 401k into required minimum
distribution at 872.
