Skip to main content
Your browser is out of date and not supported. We recommend you update your browser for a better online banking experience. Learn More
Selling Your Business: Reaping the Reward for All Your Hard Work

Building your own business may have been tough, but deciding to sell could prove just as grueling. Once you have made that difficult decision, however, you'll likely want to get as much for your business as you can—and that takes planning.

Selling a business can affect many people, including your family, employees and customers. The transaction can also be complicated—and it will probably be emotional. After all, you're selling this "baby" that you may have built from the ground up. But with guidance from the right professionals, you could sell your business at a price that rewards your hard work and helps you meet your long-term financial goals.

Next steps

Once you have decided to sell your business, here are some steps to consider before putting it on the market.

Determine a value. You will need an accurate valuation of your company, whether you're selling to an outsider or transferring it to employees or family members. A professional business valuation service can help determine the worth of tangible assets, including buildings, machinery, equipment and inventory, as well as intangibles, such as your company's reputation, the number and loyalty of customers and employees, and any patents. The valuation service will also analyze your sales and expenses through various business cycles.

Find a business broker. A business broker can help you set a realistic price for your business, market it without disclosing your identity, find qualified buyers and negotiate terms of the sale. You can probably find a broker through your local chamber of commerce, other business associations or online.

Keep quiet. While you may need a valuation service and business broker, you don't need everybody else—including customers—knowing that you're thinking of selling. You may decide it's best to keep your employees uninformed until you know who is buying your business and what the new owner's plans are for the company and the workers you hired.

Be prepared for seller financing. It would, of course, be nice to walk away from the business with the entire sale price in cash. But much of the time, that doesn't happen. Instead, you may be asked to lend the buyer part of the sale price—perhaps 50% or more—to be paid off in installments, possibly followed by a large balloon payment after several years. You will need to thoroughly investigate the buyer's financial records, credit history and background. A business broker can help here.

Look into buy-sell agreements. Also known as a buyout agreement, this is a binding contract between co-owners that determines what happens if a co-owner leaves the business, is forced out or dies. The buy-sell agreement details who can buy your share of the business. This may be a current partner but could also be a family member or other shareholders. The agreement also spells out what events will trigger the buyout and—perhaps most important to you—the price that will be paid for your share. You will need an attorney with experience in drafting such agreements. Buy-sell agreements are often backed by an insurance policy on the participating owners' lives. Such an "insured" buy-sell agreement can help ensure that there is money available for the remaining partners to buy a deceased owner's share of the business.

Consider a stock redemption plan. A stock redemption plan may be an effective alternative to a buy-sell arrangement. Under a stock redemption plan, the company redeems the shares of the withdrawing stockholder. To pay the withdrawing shareholder or his or her estate, the corporation typically uses life insurance. The corporation purchases one policy for each shareholder under a stock redemption plan, instead of shareholders purchasing insurance policies on each other, as happens with a buy-sell arrangement. Thus, stock redemption plans can be easier to administer than buy-sell arrangements because stock redemption plans require only one life insurance policy per shareholder. In addition, any unequal insurance costs due to individual health and age are evenly shared among the partners through their stock ownership.

Think about gifting. Gifting can be a good way to pass a business—or, at least, part of its value—from one generation to the next or to employees if they're going to be taking over the company. In 2013, you can give up to $14,000 to as many people as you like without worrying about the gift tax. Your spouse can also give $14,000, for a total of $28,000. For example, assume you have been thinking about incorporating or have already done so. If your business is incorporated, you can transfer shares to employees, partners and family members. So, if you and your spouse have a son and daughter who will take over the business, the two of you can give the two children a total of $56,000 in shares each year free of gift tax. That gives them an increasing share of the business and shrinks your estate for tax purposes. Be careful in valuing the shares. If the IRS doesn't agree with your valuation, you might have to pay some hefty taxes. You will need your tax attorney and valuation company for this.



The information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, investments or other products named.

Terms, conditions and fees apply to accounts, products, programs and services and are subject to change. Business loans and other products are available subject to credit approval by Citibank, N.A., Member FDIC, an equal opportunity lender,

Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Since life insurance is medically underwritten you should not cancel your current policy until your new policy is in force. Your actual premiums may vary from any initial quotation you receive. A change to your current policy may incur charges, fees and costs. A new policy will likely require a medical exam. Surrender charges may be imposed and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

Since there are different corporate and individual tax consequences of a buy-sell arrangement versus a stock redemption plan, neither should be undertaken without the advice of an independent tax professional.

There is no guarantee that these strategies will succeed. This information is intended to illustrate products and services available through Citigroup Global Markets Inc. The strategies do not necessarily represent the experience of other clients, nor do they indicate future performance. Investment results may vary. The investment strategies presented are not appropriate for every investor. Individual clients should review with their Financial Advisors the terms and conditions and risks involved with specific products or services.

© Citigroup Inc. Citi Personal Wealth Management is a business of Citigroup Inc., which offers investment products through Citigroup Global Markets Inc. ("CGMI"), member SIPC. Insurance products are offered through Citigroup Life Agency LLC ("CLA"). In California, CLA does business as Citigroup Life Insurance Agency, LLC (license number 0G56746). CGMI, CLA and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc. or its affiliates.

Share Your Screen With A Phone Representative

During your call, you may be asked to share your screen for a faster, more efficient experience. If you agree, the phone representative you're speaking with will give you a Service Code to enter below.

If you need assistance from a Citi representative, contact us via chat or phone