Business Sale & Transition Planning

Hi, I’m Beau Ruff with Cornerstone. Today, we’re going to talk about business sales and transitions.

I wanted to provide our clients with a roadmap for thinking through the process of selling a business. If you’re like most business owners, you’ve probably never done this before. Back when I was in private practice as an attorney, I regularly helped business owners sell their businesses or transition ownership to family members. Far too often, however, business owners came to me after they had already negotiated a deal and simply wanted the paperwork drafted.

In my view, that’s much too late to involve professional advisors. Attorneys, accountants, business valuation experts, and financial planners can provide significantly more value when they’re brought into the process early. The purpose of this presentation is to help you understand the steps involved so you can prepare appropriately and maximize the value of your business.

The first thing I want to emphasize is that if you have more than a simple hot dog stand, you’re going to need a process. If you’re selling a basic operation with few assets or complexities, a simple plan may be sufficient. Most of the people watching this presentation, however, have spent years or even decades building something meaningful. Your business has been your baby. The process of selling it can be both exciting and emotional.

In many ways, the experience is bittersweet. On the one hand, you’re preparing to say goodbye to something you’ve worked incredibly hard to build. On the other hand, you’re celebrating a successful business career and positioning yourself for the next chapter.

Throughout this process, you should have a team of trusted professionals involved, including your attorney, CPA, financial advisor, and, in many cases, a business valuation expert.

Understanding the Different Types of Business Transitions

When we talk about business sales and transitions, we’re really talking about a wide variety of situations. You may be selling the entire business to a third party. You may be selling only a portion of the business. You may be transitioning ownership to children or other family members through staged purchases over time. You may be bringing key employees into ownership or exploring an employee stock ownership plan.

Regardless of the type of transition, the same underlying principles generally apply. The goal is to position the business, the buyer, and yourself for the best possible outcome.

Even in family transitions, it’s important to understand what the business is worth and what you’re potentially giving up. For example, let’s say you believe your business is worth $5 million and you’d like to sell it to your child for $4 million. If a professional valuation later indicates the business is worth $3 million, your perspective may change. Likewise, if the valuation comes back at $10 million, that might also affect how you structure the transaction.

Too many business owners skip important planning steps, involve professionals too late, or fail to properly position their businesses before going to market. That often results in lower sale prices and unnecessary complications.

The Ten-Step Process

The roadmap I recommend includes ten major steps that help position your business for a successful transition. We’ll discuss each one in turn.

Before we do that, however, it’s helpful to review the different roles involved in a corporation. Even if your business is structured as an LLC or partnership, the concepts are similar.

Many small business owners serve as shareholders, directors, officers, and employees all at the same time. As a reminder, shareholders own the company. Directors establish strategic direction and elect officers. Officers manage day-to-day operations. Employees perform the actual work. While these roles often overlap in closely held businesses, understanding the distinctions becomes important when ownership begins changing hands.

Step One: Update Books and Records

The first step is cleaning up the books and records. This includes both the financial side of the business and the legal side of the business.

As the sole owner or majority owner, you’ve likely run the company in whatever manner worked best for you. Maybe you’ve used aggressive tax deductions. Maybe you’ve paid yourself a below-market salary. Perhaps family members have been compensated through the business. Maybe corporate records haven’t been updated consistently.

All of that may have worked perfectly while you owned the company. However, a potential buyer is going to examine the business through a completely different lens.

Think about selling a car. The vehicle may drive exactly the same whether it’s clean or dirty. Yet people routinely wash, detail, and prepare vehicles before selling them because presentation matters. The same principle applies to your business.

You want to ensure ownership records are accurate, stock ledgers are current, operating agreements are updated, leases are in place, assets are properly documented, and relationships between entities are clearly defined.

If the business operates alongside related entities, such as a separate real estate company that owns the building, those relationships need to be properly documented. If there should be a lease in place, create one. If ownership records are unclear, update them.

You should also evaluate whether certain expenses truly belong in the business. Personal vehicles, unnecessary payroll expenses, or other discretionary expenditures may artificially suppress profits. Although buyers understand these adjustments can be explained, the fewer adjustments that require explanation, the better.

Importantly, business valuations often look back several years. Because of that, these improvements should ideally begin well before you intend to sell. In some cases, starting three years prior to a transaction can significantly improve the picture that buyers see.

Step Two: Obtain a Business Valuation

Once your records are in order, the next step is obtaining a professional business valuation.

My preference is to work with a CPA who holds the Accredited in Business Valuation (ABV) credential, although other qualified valuation professionals may also be appropriate.

Depending on the nature of your business, additional valuation specialists may be needed. If the company owns significant real estate, collectibles, mineral rights, intellectual property, or other unique assets, those assets may require specialized appraisals.

The valuation process often takes months. The valuation expert will request a significant amount of documentation, and gathering that information often takes longer than business owners expect.

The purpose of the valuation is not necessarily to provide a definitive sales price. Rather, it gives you an objective, professionally supported understanding of what your business may be worth. That information helps shape negotiations and strategic planning moving forward.

Step Three: Meet with Your Professional Advisors

Once you have a valuation, it’s time to bring your professional team together.

Your attorney and CPA may view certain issues differently. For example, a CPA may recommend installment payments over several years for tax purposes. An attorney may point out the collection risks associated with carrying a note.

Neither perspective is wrong. The goal is to get everyone in the same room and evaluate tradeoffs together.

At this stage, you’re deciding how you’d like the transaction structured. Should it be a stock sale or an asset sale? Which assets are included? Which assets are excluded? Is seller financing acceptable? If so, on what terms?

The goal is to enter negotiations knowing what an ideal transaction looks like for you.

Step Four: Create Marketing Materials

Next, prepare materials that explain the business to potential buyers.

This can be a flyer, presentation deck, executive summary, or other document. The purpose is to tell the story of your business and explain what makes it valuable.

Describe the company’s history, growth, employee base, customer relationships, revenue, profitability, facilities, and market position. Include photographs and visual elements where appropriate.

Think of this as an expanded version of your elevator pitch. You’ve spent years talking about what your business does. Now you need a tool that explains why it’s an attractive acquisition opportunity.

Step Five: Begin Discussions with Potential Buyers

At this point, you’re ready to identify and engage potential buyers.

Buyers may include competitors, larger companies looking to expand, private equity firms, family members, key employees, employee stock ownership plans (ESOPs), or online business marketplaces.

The right buyer depends entirely on your goals. Some buyers may pay more. Others may be more likely to preserve your employees, culture, or legacy.

Step Six: Negotiate a Letter of Intent

When a buyer expresses interest, the next step is generally a Letter of Intent, often referred to as an LOI.

The LOI is usually a short document outlining key transaction terms. While it is often nonbinding with respect to the final purchase itself, it typically contains binding provisions covering confidentiality, non-solicitation, exclusivity, and other protections.

This stage allows both sides to determine whether they want to invest time and energy into moving forward.

Step Seven: Due Diligence

After the LOI is signed, due diligence begins.

This is the process where buyers investigate the business in detail. They’ll review financial statements, tax returns, contracts, employee information, ownership records, and operational practices. They may visit facilities, interview management, and engage their own advisors and valuation experts.

This is also the point where transparency becomes critically important. Any significant issues, liabilities, disputes, or risks should be disclosed appropriately.

Step Eight: Negotiate the Purchase Agreement

While due diligence is occurring, attorneys typically begin drafting the purchase agreement.

Unlike a Letter of Intent, which may be only a few pages long, a purchase agreement can be dozens of pages long and contain extensive exhibits and supporting documentation.

This agreement defines the final terms of the transaction and often goes through multiple rounds of negotiations. It’s common for the process to take months as each side reviews, comments, and revises the document.

Step Nine: Closing

Once the purchase agreement is finalized, the transaction moves toward closing.

Closing is the point where ownership actually changes hands. Stock certificates are transferred, assets are conveyed, and purchase funds are delivered.

Closing does not always occur on the same day the purchase agreement is signed. Sometimes there are strategic reasons for choosing a future closing date, such as aligning with quarter-end reporting, seasonal business cycles, harvest schedules, or other operational considerations.

Step Ten: Post-Closing Activities

Even after closing, the process may not be completely finished.

Many transactions include post-closing obligations such as earn-outs, contingent payments, tax adjustments, consulting agreements, or employment arrangements. In some cases, a former owner may remain involved for several years to support the business and facilitate a smooth transition.

Only after these obligations have been completed is the transaction truly finished.

Final Thoughts

One of the biggest takeaways from this discussion is that selling a business is rarely a quick event. It’s usually a multi-year process.

If you’re hoping to transition your business in five to seven years, now is the time to start planning. Cleaning up records, maximizing profitability, obtaining valuations, structuring transactions, and positioning the business for sale all take time.

The earlier you begin, the more options you’ll have and the better positioned you’ll be to maximize value while preserving your legacy.

I hope this has been helpful in providing a roadmap for thinking about business sales and transitions. Again, I’m Bo Ruff with Cornerstone. I wish you the very best as you prepare for your business transition, whether that means passing it to the next generation or finding the right buyer for the future.

Thank you.