Advisors can play a role in helping clients navigate the many options for transferring business ownership.

Step 1: Choose a successor
• Sell to partners. This option may provide continuity with customers and associates, but a sale in the open market could be more valuable.

• Transition to family. Family ownership can have challenges and advantages. You need to consider which family members have skills to run the business, how you will transfer wealth to family members not involved in the business, and how the transition will affect key employees.

• Sell to a third party. This option may be the most lucrative but may have a negative impact on relationships with customers and key associates.

• Transfer through employee stock ownership. Transferring ownership through an employee stock ownership plan can create liquidity over time and reward employees. It can also provide tax benefits.

Step 2: Assess the value of the business
First, take a broad view and consider how a potential buyer may perceive your business based on variables other than financial data, such as whether the business offers potential for growth, how a transition would affect client retention, or whether the revenue stream is consistent and dependable.

Second, in determining a financial valuation, consider using a market comparison or income method to determine the current value of the business.

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Step 3: Structure the deal
When structuring the deal, there are many considerations for both buyers and sellers in the negotiations, which may include:

• Whether the purchase involves cash, equity, notes, or a mix of assets

• Initiating performance triggers based on growth and client retention

• Exploring the tax implications for both buyer and seller

• Considering an installment sale to spread out the taxable gain

• Recognizing that certain elements of the business such as accounts receivable and customer lists are taxed differently for the buyer and seller

Spending time to develop a succession plan is a great opportunity to help clients improve the value of their business. To learn more, download our investor education piece.