Pre-sale Planning for Entrepreneurs

Pre-sale Planning for Entrepreneurs

Jun 7, 2022, 1:42:21 AM Business

Selling a business can be a daunting task for many. As owners or entrepreneurs begin considering the sale of their enterprise, there are numerous factors to consider. It really does take a village to get the process going. Xerxes Mullan, the Founding Partner of independent financial advisory Avestar Capital, suggests starting early. “Selling a business requires a lot of pre-planning and can even involve the families of the entrepreneurs. The key here is to start early and organize your team of advisors”, says Xerxes Mullan


The decision is more than a mere financial one- it is also an emotional decision. The ramifications of selling a business impact the future of the entrepreneur and their family. Therefore, it is crucial to focus on the long-term objective of the sale rather than focusing on the short-term. Firms such as Avestar Capital are essential to assisting individuals in understanding the tax liabilities associated with the sale of a business, helping negotiate well-structured deals and helping exit their business favorably while preparing the company for the transfer of ownership. This process can take some time. The following are some ways in which entrepreneurs can prepare if they plan to sell their business. 


1 - Preparing the family 


Avestar Capital works with numerous ultra-high-net-worth clients and has gleaned that it is of utmost importance to include your family and educate them on thoughtful wealth management. This ensures that future generations are taken care of. By including the children & grandchildren, they can understand and get involved in wealth management early on. 


Apart from this, it is essential to hold family meetings in order to gauge current needs, shared values and aspirations for future generations. Make sure that all family members understand their roles & responsibilities and have an understanding of the risk and reward. By including trusted financial or wealth planners in these discussions, entrepreneurs can derive a wealth management strategy which will ultimately impact the kind of deal struck when the business sale is made. 


By including family members and advisors in these meetings, entrepreneurs can even discuss the importance of managing their money thoughtfully and devise a strategy that underlines their core values for future generations. 


2. Organizing the numbers 


Once the discussions as mentioned earlier have been had, and there is a more explicit goal in mind, the next step is to get business financials in order. Understand key numbers. Start by cleaning up accounts, making financial statements, and future projections, preparing key metrics, understanding outstanding liabilities, relative growth in gross sales, growth in net income, etc. 


These tasks could be time-consuming, and therefore it is best to start as early as possible. Some entrepreneurs might consider getting an independent audit of the financials to boost the buyer’s confidence in the company. Thinking all this through in advance will allow the entrepreneur more time to prepare and enable things to run smoothly. 


3. Have a team of advisors 


Even if the business is small, the task of selling it is a huge undertaking. Entrepreneurs need to gather a team of business, financial and trusted advisors to help with the process, to ensure due diligence is done to ensure a bright future for the company. 


The deal can be pretty complex. To help with this, the team can have a business broker or investment banker, a valuation expert, an accountant, tax advisors, transaction attorneys, personal financial advisors, and estate planning attorney, to name a few. These specialists and experts can guide entrepreneurs and navigate them through the complicated structure of the deal, how to retain certain crucial employees, tax planning, cash flow planning, post-sale and more. 


4. Obtain a valuation of the business 


Entrepreneurs or business owners may have an idea of the value of their business. Still, it is necessary to understand the real-world value in the current market conditions as well. This is an essential aspect of pre-sale planning. The nature of sale structures can impact the estimated valuations as well. It is worthwhile to discuss this with the advisory team and then make a decision. If the entrepreneur has a target number in mind and the valuation is lower, there are ways to strategize to reach this target. The entrepreneur could focus on customer or supplier diversification, increasing management, expanding products, etc. 


5. Defining future goals & financial needs 


While most entrepreneurs would want to invest the windfall immediately and put it to work in the market, it is important to remember that this is your life’s work. Therefore the decision is not just financial but also an emotional one. Watching this large amount of money fluctuate in the volatile market and the risk of incurring losses can be complex. A more viable course of action is to get into the market with a dollar-cost averaging strategy. This will spread out the investments over a period of time to lessen the impact of volatility and uncertainty. Investing a smaller and fixed amount regularly is relatively less risky.


To begin with, entrepreneurs can stow the funds in a cash management access account at a bank. This is a safe place to earn some interest while the next steps are planned. At this stage, it is ideal to consult with an experienced wealth management team such as that of Avestar Capital, who help transitioning entrepreneurs. 


The wealth managers will work on a long-term wealth plan that takes the entrepreneur and their family’s needs into account and employees' strategies such as estate/wealth tax planning and setting up trusts to transfer wealth. Entrepreneurs may even invest 5-10% of their capital on risky ventures, with the bulk of the wealth invested in long-term, less volatile strategies. 


Entrepreneurs may even consider starting a family office depending on the complexity of the family’s newly acquired wealth and needs. Specialty firms such as Avestar Capital have seasoned professionals who offer dedicated multi-family office services.  


Lastly, entrepreneurs may want to consider whether they plan to retire or start a new venture. The plan in place should maximize the value of the proceeds as well as allow them to maintain the same lifestyle. 




Published by Samantha Brown

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