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Former Business Owners Admit to Seller’s Regret

New York (December 19, 2012)

By Michael Cohn

Only 10 percent of former business owners were highly satisfied with the process of selling their company, and 54 percent were dissatisfied, according to a new survey by the accounting firm Rothstein Kass.

The survey, of 116 ex-business owners of small to middle-market companies, found that the key to satisfaction with the process of selling their business was being extensively engaged in pre-exit corporate and personal planning. Owners who integrate financial planning and wealth management are not only happiest with the sales process, but also best positioned to receive the highest potential acquisition price for the company and gain more personal wealth.

“For these business owners, the decision to sell represents a once-in-a-lifetime opportunity with lasting repercussions on the overarching wealth and wealth management strategy of both the individual owner and his/her entire family,” said Tom Angell, principal-in-charge of the Rothstein Kass Family Business Practice. “Paramount to the sale, and ultimately the sales price, is the sales process. But knowledge of how it works isn’t inherent, which is why the number one priority of a business owner looking to sell must be to extensively and meticulously prepare.”

The firm’s family office practice has developed a four step ‘Pre-Exit Corporate Planning Checklist’ that helps business owners learn the sales process, prepare an exit strategy, get all advisors on the same page and take the vital steps to structure and position a company for sale.

The majority of business owners polled (60 percent) reported having no knowledge of the sales process prior to the experience of selling their business, a contributing factor to the high dissatisfaction levels. As a result of the lack of familiarity with the sales process, and a lack of planning, more than three-quarters of respondents (77 percent) reported a lack of coordination between their team of advisors as the primary reason keeping them from being highly satisfied with the sales process.

The main two reasons former business owners cited for not being highly satisfied with the sales process—not working as a team and advisors being unresponsive—are both easily preventable with two things: early due diligence of the wealth management group and the use of a team coordinator, or “quarterback,” according to Rick Flynn, a principal with the Rothstein Kass Family Office Group. “Business owners deserve customized treatment and care during what can be the most stressful period of their lives, and it’s the responsibility of their advisors to serve as their rocks and guides,” he said.

Corporate planning and sales process familiarity are not the only components in a successful sale, as the most important factor to an individual owner’s happiness is often the income they acquire. While only 8 percent of respondents were dissatisfied with the price received for the company, nearly a third (30 percent) were dissatisfied with the personal wealth gained from the sale. This disparity results from only one-third of respondents (37 percent) reporting having engaged either moderately or extensively in pre-exit personal financial/tax planning, compared to the half (53 percent) who partook in moderate to extensive pre-exit corporate planning.

“If any pre-planning occurs, it’s most frequently done on the corporate level, as business owners often times get wrapped up in the business sale,” said Flynn. “But equally important is personal financial and tax planning, because in business sales, maximizing after-tax proceeds is key. Many advanced strategies exist that can greatly increase the business owners wealth by mitigating capital gains and decreasing future estate taxes, to name a few. But having been in this industry for years, we know many of these money-saving strategies must be put into place before a sale, which is why personal planning is always worth the extra time.”

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