Plan now. Just having a vague notion that you'll sell the business when you retire is not the way to maximize the wealth transfer.
"If you want to give yourself as many options as possible when it is time to structure a deal, then you have to do one thing: Start early," says Patrick Hanratty, managing director of Capital Advisors Ltd. "There are things you can do while you are still an employee that you can't do when you are outside."
How you structure any deal to sell the business to outsiders or partners or to divide it among family members is tied directly into your overall retirement plan and estate plans. The more money you have from other sources, the more flexible you can be on the transaction.
Here are four basic guidelines to start planning for your exit.
* Gather the facts. What is the company worth? How will its cash flow affect any transaction? Is there real estate involved?
"Understand what structure you have," says Hanratty. "There are different options if you are a C Corp, S Corp or LLC. If you are a C Corp, there are a lot less options. That's why you should start early, so you can review the structure of the business."
* Define the players. Who are you selling to? Partners? Or is the business being divided among family members? If you are dividing the business among family members, you need to look at who is getting what and how the value of the varying pieces compares to make sure everyone is getting the amount you want them to have.
If you are selling to partners, plan to have the company's financials in top-notch shape, so when the time for the buyout comes, they will be able to secure financing.
* Test the options. Look at how the deal will affect your estate and income tax plans. For estate planning, liquidity is usually the main goal.
Determine how the wealth will be distributed to your heirs, whether it is a combination of gifts and trusts, or some other plan. There are tax advantageous ways to transfer assets. Make sure you look at all of them.
* Cover the interim. "It takes time to gather the facts and work through the process," says Hanratty. "The first thing to do is have agreements in place that cover if you die in the interim.
"Define the value, the terms and the operational and management succession. You also need to be reducing your dependence on the business for financial security." How to reach: Capital Advisors Ltd., (216) 621-0733