Six Best Practices for Selling or Transferring Your Business

By Pratik Patel, Managing Director and Head of the Family Wealth Strategies Team

Six Best Practices for Selling or Transferring Your Business

Selling or transferring a business can be a life-changing event.  The event is the culmination of years of hard work and often results in the monetization of your largest, albeit most illiquid, asset.

That said, the process requires forethought and planning.  The best outcomes are realized through years of advanced planning.  Assemble a team of advisors who will lead you through each step along this journey so you can ensure the most favorable outcome.  BMO Family Office shares six best practices to guide you in the pursuit of a sale or transfer of a business.

  1. Leave ample time to structure the kind of transition you want. 

  1. Understand the true value of your company.

Knowing the realistic value of your business helps ensure you avoid surprises when considering running a competitive process to maximize value. 

Valuation is typically conducted by a mergers and acquisitions firm or an investment bank.  For estate planning purposes, a valuation conducted by a qualified appraiser with knowledge of your industry will establish a fair market value for the business.  Knowing the fair market value is essential if your estate plan involves making gifts to family in order to have a certain value of shares or interests transferred for tax planning purposes.

  1. Consider the emotional aspects of a sale or transfer. 

This may be a financial transaction, but there are emotional aspects to any sale or purchase.

Your business has likely been one of your highest priorities for many years.  Prepare emotionally to accept the change before you begin your negotiations.  Are you looking forward to travel?  Spending more time with the family?  Starting a new venture?  Joining a charitable organization?  We recommend you set aside some time to develop a well-crafted plan for your next chapter.

  1. Create a solid plan for the outcome you desire.

A good plan will direct you to the right type of buyer, be it an outside buyer, management, strategic partner, or family member.

You may want to stay involved in the business during a longer transition period.  In that case, you’ll want a buyer who welcomes your involvement.  Perhaps you feel that the future owners should stay in the community that you cherish.  The negotiations are your opportunity to structure the deal with the most favorable terms for you.

Know that insisting on specific conditions may mean agreeing to a lower sale price.  Some owners are willing to give up some value if it means executing a sale on their own terms.

  1. Plan for unforeseen circumstances.

A business is an illiquid asset, and a sale is often necessary to monetize the value.  However, emergencies may arise that can pre-empt even the best-laid plans, such as the death of an owner.

If a business needs to sell fast, perhaps to settle an estate, that’s a less than optimal situation to obtain the best price.  For starters, the right people may not be in place to take over, and the market cycle may not be as receptive as other times.

Advanced planning is vital, so you can sell on your terms and realize the valuation you seek.

  1. Understand the tax implications

A sale of a business will most likely require capital gains on the appreciation of the sale of stock or interest units (if you are selling securities).  In addition, there may be ordinary income and income recapture if the buyer only purchases the business’s assets.  However, with early planning you may minimize some of the consequences of the transfer.

You may structure the sale so you receive income payments over time, rather than in one lump sum.  Installment payments may lower your overall tax obligation by keeping you in a lower tax bracket.  An installment sale involves some risk.  In theory, by doing this, you will be financing the buyer’s purchase.  If the buyer is unable to pay or the business fails, you may not realize all your payments.  You may need to step back in and run the business for a time, and then begin the transition all over again.


Consult with your tax and estate planning professionals for the most tax-efficient strategies for your particular situation.

As you begin the next chapter of your business and look toward the future, work with your team of advisors to help you optimize value, find new owners, and protect your heirs with the necessary estate planning – all on your own terms.  

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