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Howard L. Lewis isn’t usually a micromanager. But that changed when he prepared to sell his business. “You can’t be a bystander or a passive viewer of this transaction,” says Lewis, founder and chairman emeritus at Family Heritage Life Insurance. “You have to be involved in every aspect of it, or decisions will get made for you or without your input.” Lewis started FHL in 1989 and built the company into a leading provider of supplemental health and life insurance products before selling it to Torchmark Corp. in 2012. Seven years have passed, but Lewis is still vocal about the need to systematically prepare for life after you sell. In this week’s Master Dealmakers, Lewis discusses his methodical approach to developing an exit strategy and the importance of tax planning before a sale.

Assess your role

You have a situation where an owner or founder has built the business and is still in control of the business. Now you’re going to sell the business. My situation was, from the outset, I had to raise capital before I could even start the business. I was the founder, but I had to give up part of the equity to get the capital I needed. We had to have $3 million cash down to start the business. We had to borrow $3 million, give up 60 percent of the equity to get the funding, and we had a $14 million credit line. In that situation, you’ve now got a corporate board that is in charge of the sale. We had a great influence on many things. However, the ultimate decision on the sale was not ours. I had to think about myself, my employees and the company that was buying us, and try to guide and direct that to an optimal situation. The new owners, they realize that they are going to have to step into the engine, into the leadership of the organization. They may decide to change peoples’ responsibilities and or eliminate people. But they don’t want that going on prior to taking ownership. They are going to be interested in what you are doing to maintain the morale of the organization and to keep the business moving forward during this massive change. Think about if you’re buying a company. You want it to operate as it had been or to be improving. You sure don’t want to buy something that is in decline. As all this moves along, the issue becomes, what are you, the founder and/or owner going to do? Are you turning your business over and you’re out of it? Are you going to transition and stay in place for some period of time to support the transition? Or are you going to be acquired by a corporate structure, and you will become an employee like everyone else? Those are very different circumstances. Depending on someone’s personality or involvement with the business, those all have a very different range in terms of how it feels, how it plays out and what the outcomes are.

Prepare for change

You’ve grown a business, prospered and been successful. Now it’s going to be sold and there are a number of considerations that are all simultaneous. You have to understand the reality of the transaction for the business as well as for your personal tax situation. Either you know the tax code and have efficiently and effectively dealt with it, or you need professional help to guide you through that. Because a mistake in that area can be very costly. You’ve worked your life to build a business. You don’t want to give it away in taxes if you can avoid it. That’s a monstrous decision and a very big consideration. Before you even get to the tax implications, you need to think about how your customers are going to be affected by the transaction. What is going to be different in terms of supply and distribution? What will be different in terms of collections and receipts? What will the impact be on customer service when this transaction has been completed? If you can’t legitimately answer that to either the buyer or to the company that is acquiring you, that needs to be fleshed out. If you injure or harm the customer base, the forward look of the business could be very different. The continuity of the business depends on your customers, your employees, staff and salesforce. These are people who have helped you build your business and who have been loyal and faithful to your enterprise. Are they being taken care of? Are they in a good situation? Are they going to prosper? Are they going to be OK? There’s a lot to deal with and think about, and a lot to be on top of, all simultaneously.

The Final Word

Ideally, you begin this process early on through careful strategy and tax planning. That way, when you reach the point of selling the business, you’ve got everything in place to where it’s just a seamless monetization of the asset.   Related post: Take time to think about your future before you put your company on the market