For many owners of privately held companies, selling their business
represents the culmination of years of work and offers the prospect of
financial security for life. Our experience has shown, however, that without
strategic financial planning prior to the sale, an owner may not realize
its full potential. By defining personal objectives and putting a few key
strategies in place, an already lucrative transaction can become a golden
opportunity—without slowing down the sale process.
Bernstein has developed an analytical framework designed to identify the
critical alternatives when selling a business. By integrating potential deal
terms, key tax- and estate-planning strategies, and ...view middle of the document...
■ Evaluating key estate-planning strategies, which often yield maximum
benefit if implemented before rather than after the transaction.
A careful evaluation of the owner’s goals and anticipated sale proceeds
can help determine the types of family or charitable trusts to establish—
whether to use a GRAT, a CRT, or both, for example—and the amounts
■ Considering various exit or liquidity strategies other than a straight
100% sale—such as the sale of a minority stake in one’s business, a
leveraged recapitalization, or sale to an employee stock ownership plan.
Key financial-planning questions arise with these strategies, including
how much of the owner’s stake to sell.
Personal Objectives Shouldn’t Take a
In the high-stakes environment of a sale—
evaluating offers, trying to close, overseeing the
interests of the company and the employees—
business owners feel pressure to focus their efforts
on the critical business issues, asking themselves
What is my business really worth?
What is the right deal structure?
How do I make sure the deal closes?
These are all key questions that must get addressed
by the owner and his deal team. Often it’s not until
after the sale closes that the owner addresses more
Did I get enough to meet my financial objectives?
What estate and trust strategies should I consider?
How should I invest my financial assets?
But it’s crucial to address these questions before the
deal—or the owner risks leaving very large sums
of money on the table. By bringing his personal
financial goals up front, he provides his team of
advisors with the information needed to tailor the
transaction properly. This is not only a business
proposition, but a personal one—complicated by
the fact that it can take many paths. What may
be surprising is that such preparation before the
transaction doesn’t have to be onerous; the main
thing is for the owner to take those first steps.
Complexity Is Manageable
This study starts with a discussion of setting
goals, prioritizing them, and quantifying the
likelihood of achieving them. These goals are
then considered in an evaluation of deal terms—
because some deal structures are better suited
than others to meet certain personal objectives,
and often can be modified to fit the owner’s needs
more closely and with less risk. Further, because
business sales offer a great opportunity to shore up
one’s family or philanthropic legacy, we highlight
the value that different trust strategies can add,
particularly when considered prior to, rather than
after, the transaction. We conclude by evaluating
the financial-planning issues that arise when an
owner considers selling less than 100% of his
business because he’s unwilling to give up control
completely or because he’s gradually preparing for
an inter-generational transfer.
The foundation of much of our analysis is a
proprietary wealth forecasting model...