Business Succession and Sale Structure

Brent O’Mara works with business owners and multigenerational families, and that work often reaches past the portfolio into tax strategy, business succession and how the sale of a business is structured. The entries in this subject treat those matters as general education: what succession planning is, how a company is valued and sold, and what the published record says about the owners now doing it.

The record says most have not started. A 2017 survey found that 72 percent of small businesses had no succession plan and that most owners had no will either.⁴ Among family companies, a consulting survey reported by the Journal of Accountancy found that only 23 percent had a robust, documented plan and that 46 percent of leaders were reluctant to pass leadership on at all, though the same article follows one canning company through a third generation handoff built on outside directors and a family council.⁶

The mechanics are better documented than the habits. The Small Business Administration lists three ways to value a company before it is marketed, by income, by comparison with recent sales and by assets less liabilities, and notes that a sales agreement may transfer either the assets or the stock of a corporation.² The Internal Revenue Service treats selling a company as the sale of each of its assets separately, with capital gain on some and ordinary income on others, and requires buyer and seller to allocate the price among those assets by the residual method, which also settles how much was paid for goodwill.¹ The New York Times described the generation of owners in their sixties and seventies moving toward sale, and showed through one Ohio foundry how a deal is often financed: a modest cash down payment, a seller’s note for a further slice, and a bank loan with Small Business Administration backing for the balance.³ How any of this applies to a particular company turns on the owners’ personal circumstances, and the working out of it is for qualified professionals in tax, law and finance.

The entries in this subject are Business Succession Planning, Asset Sale or Stock Sale, Buy Sell Agreements, Earnouts and Seller Financing, How a Business Is Valued, Employee Ownership and ESOPs, The Wave of Retiring Business Owners and Management Buyouts.