Summary
- Prepare well before selling your business. Strong, consistent financial reporting; less reliance on the owner; and a capable management team can make earnings easier for buyers to validate and help support a smoother sale process.
- When selling, plan around after-tax proceeds, not just the headline price. Your residence, deal structure, potential post-sale role and plans for investing the proceeds can shape what the sale ultimately provides for your personal financial goals.
Preparing your business for sale starts well before a buyer makes an offer. First American Bank helps owners consider how a transition fits their business and personal financial goals, from the questions to ask before selling to the exit options available. Early preparation gives you time to strengthen your financial reporting, evaluate how your state of residence may affect after-tax proceeds, and decide whether you will stay after closing. For an owner contemplating a $10 million sale, these are consequential decisions, not last-minute details.
Prepare your business financials for buyer due diligence
A buyer is purchasing future performance, not just last year's results. To defend an asking price, you need to show how the company earns money, which customers and products drive margins, and whether cash flow can continue without you. Reliable financial controls make that story easier to verify.
In practice, that means:
- Closing the books consistently each month and reconciling accounts.
- Separating personal from business expenses, and explaining unusual costs, owner-related adjustments and changes in revenue.
- Maintaining financial statements, tax returns, and supporting records that agree with one another.
- Tracking receivables, inventory and customer profitability where relevant.
A buyer may commission a quality-of-earnings review to test whether reported earnings are accurate and repeatable. Your accountant can advise whether reviewed or audited statements, or a sell-side earnings review before going to market, would be worthwhile for your deal.
Financial discipline is only part of the valuation story. Customer concentration, unstable margins or dependence on the founder can make a buyer question future earnings. First American Bank discusses the importance of predictable cash flow, diversified revenue and leadership depth in its article on resilient companies. First American Bank can help owners connect the potential sale with their broader financial plans, while a qualified valuation professional should assess the company’s value.
Consider state taxes and your state of residence when selling a business
Sale price is not the same as after-tax proceeds, and your state of residence when the gain is recognized may affect your state income-tax liability. First American Bank serves owners in Illinois, Wisconsin and Florida, whose rules illustrate why the question deserves attention: Illinois has a 4.95% individual income-tax rate; Wisconsin generally permits a deduction for 30% of qualifying net long-term capital gain, with the remainder subject to its applicable income-tax rates; and Florida does not impose personal income tax.
To see the scale, 4.95% of a hypothetical $10 million taxable gain is $495,000. Taxable gain is rarely the same as sale price, and the result depends on the owner, the entity and the transaction; a change of address alone does not produce the saving. But a difference of that size is worth planning for, not discovering at closing.
A real change of domicile involves where you live and intend to return, not merely a new driver's license. Illinois explains that domicile is determined from the facts, including time spent in each state, homes, vehicle registration and voter registration; it can also tax Illinois-source income received by nonresidents. A genuine relocation generally takes a year or more to establish and document. There is no fixed legal period; the more time and evidence supporting the move, the better it may withstand review. Involve a multistate tax advisor before negotiating the sale structure or making a move.
Decide whether to stay on after selling your business
In an owner-led business, the buyer may worry about what happens to customers, employees and operations when you leave. If you are willing to manage the company for a defined year or two after closing, you may reduce that transition risk and strengthen your negotiating position. The buyer might offer a better price or terms, but neither is guaranteed. If you want to leave immediately, a credible management team and succession plan can address the same concern. If you plan to relocate, discuss with a multistate tax advisor how a continuing management role could affect your domicile and state tax position.
Consider a hypothetical $10 million transaction. A 10% difference in the negotiated price would equal $1 million, illustrating how significantly a buyer’s confidence in the transition could affect the outcome. This is not a typical premium for staying or a prediction of what any buyer will pay. Before signing, define your role, authority, compensation, and end date. Managing the business after closing is a commitment, not simply an added benefit.
Also distinguish additional value from deferred or conditional payment. An earn-out makes part of the payment dependent on future results, and staying on does not ensure the targets will be met. An employment or consulting payment may also be treated differently from sale proceeds. Ask your attorney and tax advisor to compare cash at closing, contingent payments and compensation so you understand both the potential upside and the risk.
How far in advance should you prepare your business for sale?
Each of these decisions has the same requirement: time. Financial reporting that will withstand a quality-of-earnings review takes several closed quarters to build. A change of domicile may take a year or more to establish and document based on where you live, your intent and the supporting facts. A credible plan to stay on, or a management team that makes staying unnecessary, takes time to put in place and prove. None of it can be arranged once a buyer has set the timetable.
The scale is what makes the timing matter. On a hypothetical $10 million transaction, a 10% difference in negotiated price is $1 million; a $495,000 state-tax illustration stands separately from it. Neither is a prediction, and both depend on the owner, the entity, and the deal. But the decisions made two years before a sale can matter more than anything negotiated in the final month.
Business sale preparation checklist: a practical two-year timeline
| Timing | Priorities |
|---|---|
| 24+ months before | Strengthen your financial reporting with a consistent monthly close process and account reconciliations. Address customer concentration and owner dependence. If relocating before the sale is part of your plan, begin establishing and documenting your new domicile. |
| 12–24 months before | Prepare for buyer due diligence by considering a sell-side quality-of-earnings review. Decide whether you are willing to stay after closing and strengthen the management team so the business can operate without you. |
| 6–12 months before | Prepare for the transaction by engaging your transaction attorney and tax advisor, modeling estimated after-tax proceeds under potential deal structures, and organizing financial and operational records for buyer review. |
Then What?
After the sale and related taxes, an equally important question remains: how should you invest the proceeds? First American Bank works alongside your accountant, transaction attorney and other advisors to connect the business transition with your long-term financial goals. That planning starts with a simple question: what does the sale need to produce for you after tax? What might an investment plan that provides adequate cash flow, modest volatility, and liquidity consistent with long term growth look like? Connect with our Wealth team to begin that conversation while you still have choices.
