How To Maximize Family Wealth When Selling Your Business

Marina Gallardo
July 20, 2023
Photo by Bram Naus on Unsplash

Here’s the scenario: You have worked for years building up your business. The company is doing well, and you’re certain some buyers would pay well for it. So, you’re now considering selling it.

As you get into selling your company, if you’re like most business owners, you’ll get wrapped up in the sales process. You may miss some opportunities to ensure you and your family are maximizing the wealth locked up in the business.

Many entrepreneurs make mistakes when selling their companies that lessen the after-tax monies they receive. Three mistakes often front and center are a lack of pre-sale wealth planning, not adequately preparing the company for sale, and failing to negotiate the deal skillfully.


Lack of pre-sale wealth planning

“Periodically, we’re contacted because entrepreneurs prefer to pay as little in taxes as legally possible when they sell their companies,” says Vince Annable, CEO and Founder of VFO Advisory Group and co-author of Your High-Performing Virtual Family Office: Maximizing Your Financial and Personal Lives.

“Most of the time, these calls come just as the entrepreneurs are about to close the sale of their companies, and they realize just how much they owe the government. Now and again, a call comes in after the sale has been completed,” he adds. “Unfortunately, these entrepreneurs have missed the window of opportunity to do most anything about their taxes. However, with forethought and earlier action, it’s quite possible to lower and sometimes eliminate the taxes owed, making them and their families much wealthier.”

If you are considering selling your company and want to minimize capital gains or future estate taxes, you’ll usually need to take action some time before the sale. If you’re charitably inclined, for instance, there are ways to lower the capital gains tax you would owe. If you want to leave your children an inheritance, you can use certain trusts to lock in your company's value and transfer its future appreciation to your kids instead of the government.

Not preparing the company for sale

For most entrepreneurs looking to sell their businesses, taking actions that can help stabilize and enhance the value of their companies is usually worthwhile. There are a plethora of steps business owners can take to make their companies more attractive to buyers.

“Two big steps business owners should likely take pre-sale include getting discretionary spending under tight control and ensuring the business’s financial statements appropriately communicate the company's value,” says Annable. “It’s also usually a good idea to have a formal and comprehensive valuation of the business and, if possible, restructure assets to create greater corporate value. What’s important is ensuring the company is in the best working order possible. This way, the value of the company is greatest.”

Failing to negotiate the sale skillfully

In helping construct negotiating strategies for ultra-wealthy entrepreneurs selling businesses, we spend much time profiling and evaluating potential buyers. By developing a deep understanding of their needs and wants and having the same insights into the entrepreneur clients, we can get agreements with them to get excellent deals.

According to Frank Carone, Chairman of Oaktree Solutions and co-author of Everyone Wins! How You Can Enhance and Optimize Business Relationships Just Like Ultra-Wealthy Entrepreneurs:

“Too often, business owners and their representatives fail to negotiate the sale of their companies artfully. Sometimes there’s a lot of pressure to make a deal that is not as good as it could have been. When involved in a sale, we want all parties to get to where there’s an agreement, and everyone is more happy than not. We believe business owners need to be closely involved in the negotiating process and aware of every proposal's ramifications.”

For many entrepreneurs, selling their companies is their largest transaction. As there are very few serial entrepreneurs, it’s also a situation they haven’t dealt with previously. You need an exceptional team of professionals to avoid missed opportunities and get the most for your company – that is, to generate the greatest amount of family wealth.

Russ Alan Prince is the executive director of Private Wealth magazine and chief content officer for High-Net-Worth Genius. He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.