The year before you sell: what to settle before the letter of intent

Owners tend to call an advisor when the offer arrives. By then the most valuable planning has usually expired. A letter of intent starts a clock, and several of the strategies that would have mattered most require you to have acted before a buyer was identifiable.

What follows is the order we work through with owners who have twelve to twenty-four months of runway. Not all of it applies to every business. The sequence matters more than the list.

Settle what you actually need from the sale

Before any structuring question, there is an arithmetic question: what number, after tax, funds the life you want next. Owners routinely misjudge this in both directions. Some discover their business needs to clear far less than they assumed, which changes their negotiating posture. Others find that the number in their head was a pre-tax number, and the after-tax figure does not support their plans.

Run this before you have an offer, because the answer changes how you respond to one. An owner who knows their number can walk away from a bad deal. An owner who does not know it negotiates against a moving target.

Confirm your entity and stock structure early

How your company is organized determines how the sale gets taxed, and whether certain exclusions are available at all. C corporation stock may qualify for treatment that S corporation or LLC interests do not. Qualification usually depends on conditions at the time the stock was issued and on holding periods measured in years.

This is the single most common place we see value left on the table. The relevant tests look backward, so a decision made when the company was founded can govern a transaction two decades later. If nobody has looked at your structure against a possible exit, that review belongs at the front of the process, not the middle.

Do the gifting and trust work while the value is low

Moving a stake to family members or into a trust is valued at the time of the transfer. Transferring a minority interest in a company that has not yet been shopped is a different exercise than transferring it after a buyer has named a price. Once there is an LOI, the valuation argument gets considerably harder.

Families who want to move part of the outcome to children or to a charitable structure generally need to start that work well before the transaction is in view. Coordinating it with your estate attorney takes months on its own.

Get the company's own retirement plan in order

Two reasons. First, a buyer's diligence team will look at the plan, and unresolved compliance problems become purchase-price adjustments or holdbacks. Second, the years before a sale are often an owner's highest-income years, which is when a plan design that permits larger deductible contributions does the most good.

Owners in this position sometimes find that adding a cash balance plan alongside the existing 401(k) shelters a meaningful share of income in each of the final years. That option needs to be in place before the income arrives.

Decide who is coordinating

A sale involves an investment banker, a transaction attorney, a CPA, an estate attorney, and whoever manages the proceeds afterward. Each of them optimizes their own piece. Somebody has to hold the whole picture, and the default answer is the owner, at the exact moment they have the least attention to spare.

Name that coordinator early. Whether it is us or someone else matters less than the fact that one person is reconciling the tax plan against the estate plan against what the family actually wants.

After the wire clears

The day after a sale, an owner's balance sheet changes character. An illiquid asset they controlled becomes a liquid one they have to allocate, and the risks invert. Concentration risk goes away and sequence risk arrives. Many owners also lose their income, their identity at work, and their reason to get up early, all in the same week.

Plan the first eighteen months after the sale before the sale, including where the proceeds sit while you decide. That decision is easier to make in advance than in the middle of a wire transfer.

This is general information, not advice about your situation. Tax and legal outcomes depend on facts specific to you and on rules that change. Talk to your own tax and legal advisors before acting.