Grizzled business veterans can pontificate about how successful enterprises are built from strength, character and luck. These elements, they say, together serve as the underpinning of business and of life beyond it. And it can be tempting to believe that earnest effort based on this foundation alone will be rewarded when the time comes.But when company owners look down the highway at the shimmering sale in the distance — the event towards which they have driven for decades — they should put those intangibles behind them. Planning, not fate, is the only real mechanism for ensuring the most value and the smoothest transition when a company changes hands.

Because just as luck and life help build the business, they can level it in the span of a few months. There are countless cases of death or disability striking an owner and forcing a sale at pennies on the dollar, or of families being torn apart by a sloppy succession when an operable plan could have been in motion to save the company’s true value and the sanity of its leaders. Should tragedy strike, emotional trauma does not have to be accompanied by financial disaster; owners must brace for the unpredictable by beginning the process earlier.

Perhaps this seems intuitive, but statistics reveal that plans are far too often not considered, not developed, or not followed. In particular, family businesses transitioning from one generation to the next have not fared well. According to the Family Business Institute, only about 30 percent of family businesses survive into the second generation, 12 percent are still viable into the third generation, and only about 3 percent of all family-owned businesses operate into the fourth generation or beyond.

To achieve the intended results, an organization must develop a highly focused strategy well before any transitional event approaches. Indeed, a well-crafted plan should be formulated as far as three to five years in advance of a sale. Execution will begin with getting the corporate house in order, from bookkeeping to management to estate planning options to guard against life’s sometimes-unexpected interference.


The sale or transition will be one of the most overwhelming journeys an owner will embark upon. Putting a team of trusted experts in place to navigate the process and protect the owner’s interests is paramount to a successful exit.

Historically, company leaders may look only to an investment banking firm when the time comes to sell, whereas there are a number of moving parts that should be addressed by professionals in the CPA, wealth management, legal and consulting fields before the process reaches that point.


The books may look solid, with healthy margins and consistent growth. But how many liberties have been taken by ownership? Are salaries to the president and involved family members in line with industry standards? Are family expenses, however minimal, being run through the company? And, most important, has anything slipped through the cracks?

A keen eye may catch some of these things, but a potential buyer most certainly will likely catch most or all aberrations. A first step in crafting a plan is to have a qualified CPA thoroughly examine the company’s financial status and make recommendations on how to make it as clean as possible.

The CPA can also apply a strategic perspective to issues such as entity structure, tax and cash-flow planning, and setting the company in a position of strength in order to survive a transition or sale.


Company founders know well how closely their lives are tied to the entity, and how much of their time, money and personality have been devoted to managing it to a successful position. No surprise, then, that reducing their role is often the furthest thing from their minds — but it is one of the most important steps that they can take to ensure a high value. In fact, the benefits of spreading management responsibility out extend beyond the sale to encompass personal financial security as well. Many owners have up to 80 percent of their net worth tied to their business, and if a tragic event should occur, the value of that asset would dry up without leadership.

Transitioning leadership should always be in the back of an owner’s mind, although a three-to-four-year lead time should be sufficient to put a full leadership team in place.


Heading into the sale process with no qualified target price in mind can be disastrous; business owners should consult a valuation expert to address this before they end up communicating with potential buyers. Specialized valuation firms can provide this service, as can CPAs who are properly accredited and M&A firms as they begin their pre-sale, evaluative process.

For straight liquidity events, this helps to avoid unrealistic expectations or selling at too low a price. Valuation is equally critical, however, when transitioning a family business to a new generation. Difficult circumstances can arise in several areas; for example, consider the death of a business owner who passes operational control of the company on to her children without assessing fair market value. Sorting out the intricacies of the estate can take years, and as the surviving husband retains financial control, the children might grow the business significantly. Determining the boosted value of the shares to be divided will be no easy task without an official starting point.

Another pitfall occurs with tax considerations. For example, if a son purchases his father’s business for a friendly price of $2 million, the government may one day pronounce that fair market value was not properly determined and the company’s true value stands closer to $5 million. The difference is labeled a $3 million gift, with heavy taxes applied.

To be done properly, business owners must get an independent, third-party valuation to justify the price of shares being gifted. Specialist CPA firms that aren’t tied to the business’ audit process can be called in for this task.


Just as an owner takes steps to protect the value of a company, they will also want to ensure that maximum value is safely passed on to heirs when the time is right. The estate world is a landscape of Swiss cheese, with regulations, tax implications and pitfalls at every step. As the sale process begins to take shape, consulting a planner with expertise in estates is critical to passing the true value of the company on to heirs.

Take the current estate tax scenario, which could directly impact willed shares if not properly considered. Estate taxes are currently at historic lows; some changes are expected, but the political landscape will dictate the new direction. Tax levels could freeze or increase, exemption amounts could change, or — if the sale prices are high enough — the asset levels involved could call for an entirely different approach.

Another basic misconception revolves around “I love you” wills, which leave all assets directly to a spouse. Romantic though it may be, this format sets the estate up for a substantial hit: Upon the spouse’s death, the newly combined estate may be subject to combined federal and state estate taxes as high as 50 percent. A sound estate plan will establish trusts and vehicles to better distribute assets and protect them from such future taxation.


There are two ways to look at a sale: found money or earned money.

Most owners scoff at the former and embrace the latter, yet they do little to protect their newfound wealth in advance. The right wealth manager can act as a partner, understanding how the sale can be leveraged over the long term, what it means as the culmination of a life goal, and how to work with business owners in assembling the right team even before the personal wealth is in hand. In addition to handling the proceeds themselves, wealth managers can assist with the transition out of ownership and the lifestyle decisions that accompany such a liquidity event.

Tapping into this expertise allows the sold company to continue to earn even after a transition. After any gifted shares are set aside, owners can assign portions of the remaining funds to address each stage of life: short-term lifestyle expenses, mid-term goals, and reserve funds for the unforeseen disaster and security late in life. Allocated correctly within the most appropriate investment vehicles, these three buckets give an owner easy access to their dreams and peace of mind for the future.


CPAs, wealth managers, attorneys and management consultants can work as a team to get owners’ affairs fully prepared for the event of their lifetime. As that groundwork is laid, company leaders can begin to embark on the sale itself. Finding a suitor, negotiating a price and managing the transition are the exciting final pieces of the process.

Getting the house in order and establishing a well-rounded plan will give owners the real foundation they need to get the most out of their sweat and tears. Then they can save strength, character and luck for roulette in Las Vegas.

Michael Tucci is president of Lexington Wealth Management, and Bob Russell is a partner at the Boston-based law firm of Pabian & Russell LLC.

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