Nate Collins is a Financial Advisor at Raymond James. He works with a select number of business owners and their families to achieve their financial goals. Nate provides in-depth tax-mitigation strategies and estate planning, as well as comprehensive family-office services. He helps owners understand exit readiness, maximize wealth transfer, gain family alignment, and prepare for “life after exit.”

nate.collins@raymondjames.com

203.635.5420

BUSINESS OWNERSHIP

Steps to a smooth business transition.

The number one axiom in M&A is: Time Kills All Deals. To make the transaction faster and easier, and more likely to succeed, check off as many of these boxes prior to starting the sale process.

Fundamentals of Financial Preparation

• Evaluate Accounting Basis: Determine if accrual or cash basis accounting suits your situation best. Given that most acquirers operate on an accrual basis, aligning your financials to this standard can facilitate smoother transactions.
• Tax Efficiency Planning: Explore eligibility for a Qualified Small Business Stock (QSBS) exemption to potentially reduce or eliminate capital gains tax upon sale.
• Financial Statements Readiness: Ensure availability of Profit & Loss statements for the last five years, current year forecasts, next year's projections, and an up-to-date Balance Sheet. Accuracy and willingness to stand behind these documents are crucial.

Structural and Legal Preparations

• Board of Directors Establishment: Set up a formal Board of Directors with scheduled quarterly meetings to enhance governance and decision-making structure.
• Intellectual Property Protection: Confirm that all employees and contractors have signed Non-Disclosure Agreements (NDAs) and agreements assigning IP rights to the company.
• Capitalization Table Management: Regularly update your Cap Table to reflect current ownership, options, and equity distributions accurately.

Operational and Strategic Preparations

• Organizational Structure Clarity: Maintain an updated Organization Chart to clearly delineate roles, responsibilities, and reporting lines.
• Quality of Earnings Report: Commission an annual Quality of Earnings report from a reputable firm. This preemptive measure can identify potential issues and expedite the due diligence process.
• Advisory Team Assembly: Gather a team of experienced advisors, including M&A specialists, legal counsel, tax experts, and financial advisors with exit planning credentials.

Post-Transaction Considerations

• Continuity Planning: Be clear on post-transaction operations, including leadership continuity. Decide if you or another executive (e.g., COO/President) will remain to ensure a smooth transition.
• Tax Mitigation and Personal Planning: Develop strategies for tax mitigation related to the sale, and work with your financial advisor on a comprehensive post-sale personal and financial plan.

Additional Considerations

• Growth and Profitability Analysis: Understand that revenue growth and profit margins vary in importance based on the company's stage. Early-stage companies should focus on growth rates, while later-stage companies should prioritize profit.

P.S. Key Insights for Success Emphasize that while the structural and financial aspects are critical, the human element—such as leadership continuity and team readiness—plays a significant role in ensuring a successful transition. Regularly revisiting and updating this checklist as your business evolves will keep you prepared for potential M&A opportunities.

By taking a comprehensive approach to your transaction preparation, you can increase the likelihood of a successful sale, minimize potential hurdles, and ensure a smoother transition for all parties involved.

Contact Nate Collins at nate.collins@raymondjames.com to discuss your business exit plans.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Nate Collins and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional.