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Selling a business? Avoid these 3 common mistakes.

Business owners may sell a business for a number of reasons. Some entrepreneurs sell their interests to transition into retirement while others are moving forward to pursue another opportunity.

Whatever the reason for the sale, it is important to take proactive steps to better ensure the transaction goes well. One way to help ease this transition is to avoid these common mistakes:

  • Not planning for tax implications. A business sale will trigger tax obligations. The Internal Revenue Service (IRS) treats each sale as a separate tax event. The sale of capital assets or equity, for example, will generally result in a capital gain or loss, while inventory sales are reported as an ordinary income gain or loss.
  • Failing to plan for an influx of cash. The sale will likely result in financial gain for the seller. As such, the seller should adjust their financial plan to account for this influx. Retirement plans and property investments are two potential considerations. Care should be given to account for potential clawbacks or indemnity claims before committing the full proceeds of a sale to a new investment.
  • Neglecting to update your estate plan. As noted in the previous point, a sale may materially change the seller's financial status. In addition to triggering a review of their financial plan it should also lead to a review of their estate plan. There are various estate planning tools to help reduce tax obligations while building the overall wealth of the estate. Consider exploring these tools to help your estate make the most of the business sale.

You can help better ensure your interests are protected after the sale is complete by taking the time to plan ahead and avoid these common mistakes.

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