Three personal wealth planning steps to take before selling your plastics business 

By David Stahl, CFA, CFP 

Plante Moran Financial Advisors 

The plastics manufacturing industry is experiencing a surge in mergers and acquisitions (M&A) activity, fueled by heightened interest from private equity firms and strategic buyers seeking opportunities in this dynamic and essential sector. For plastics manufacturing business owners, this uptick in M&A activity presents a unique opportunity to capitalize on favorable market conditions where deal-making is accelerating.  

However, the complexity of these transactions makes it imperative for business owners to prioritize personal wealth planning now. Proper preparation helps ensure that the financial benefits of a sale are maximized and aligned with your long-term financial independence goals. 

Selling a business is a significant milestone, marking the culmination of years of hard work and dedication. For business owners, this transition involves not only preparing the business for sale but also ensuring personal financial readiness.  

There are three critical steps every business owner should take to prepare for this transition: updating your personal balance sheet; assessing financial independence post-sale; and assembling a team of experienced professionals. 

Step 1: Update your personal balance sheet 

The first step to prepare for the sale of your plastics manufacturing business is to update your personal balance sheet. This document provides a comprehensive snapshot of your financial position, detailing all assets, liabilities and ownership structures. 

While seemingly straightforward, this exercise is crucial. It lays the groundwork for several aspects of planning, including income tax strategies, estate planning and financial independence assessments. By gaining a deep understanding of your finances, you can more effectively evaluate how sale proceeds will impact your future. 

Step 2: Plan for financial independence post-sale 

The next step is to assess whether the expected sale proceeds will support your long-term financial independence. This involves analyzing the balance sheet as it appears now versus how it is expected to look after the business is sold. 

For many owners, the sale of their business represents the primary source of their future wealth. Careful consideration should be given to whether the proceeds will provide adequate resources to maintain your desired lifestyle, retire comfortably or pursue other ventures. If the analysis reveals a gap, steps can be taken to enhance the business’ value before entering the market. 

Additionally, this phase is an opportunity to explore personal estate and wealth planning strategies. If the sale is expected to generate excess liquidity beyond your financial needs, pre-sale estate planning can help minimize estate taxes and preserve wealth for future generations. Here are some pre-sale estate planning strategies to consider: 

• Sell or gift a portion of your business while leveraging valuation discounts, which refers to a reduction in the business’ appraised value. This approach can minimize the taxable value of the transferred interest, benefiting other family members while reducing your overall estate tax exposure.  

A commonly used vehicle in this context (when applicable) is a Spousal Lifetime Access Trust (SLAT). A SLAT enables you to transfer assets out of your estate while retaining indirect access to those funds through your spouse, creating a “safety valve” for unforeseen financial needs as long as that spouse is alive. This strategy is particularly valuable when the business’ ultimate sale price is uncertain, or if you’re unsure whether the proceeds will fully meet your financial independence goals.  

• If charitable giving is part of your financial plan, the timing and structure of your contributions can significantly impact your tax outcomes. The year of a business’ sale often sees a spike in income, making it an opportune time to optimize the mix of capital gain and higher ordinary income tax rates, leveraging charitable contributions to offset the latter. 

Running a multiyear tax projection allows you to strategically plan when to make charitable contributions to optimize tax savings. Additionally, choosing the right structure for long-term charitable giving is vital. A clear charitable giving plan, developed with your advisory team, ensures your contributions align with your personal values and financial objectives. 

• If your business is eligible for the qualified small business stock (QSBS) exclusion, you may be able to exclude capital gains tax on the sale of certain C corporation stock. Similarly, for businesses with an incentive stock option plan for owners or staff, early planning is crucial. Exercising stock options far enough in advance of a sale can result in significant tax savings, including eligibility for long-term capital gains rates or the QSBS exclusion. 

Failure to act before the sale can lead to unfavorable tax consequences. For instance, if options remain unexercised before a transaction closes, the resulting income may be taxed at ordinary income rates instead of the lower long-term capital gains rates.  

These strategies are most effective when implemented well in advance of a sale. Many personal estate and wealth planning opportunities are either optimized or missed as a transaction approaches. Starting early provides the time necessary to implement these strategies effectively and positions you to make the most of your sale while securing your financial future. 

Step 3: Assemble a team of professionals 

A successful business sale requires the expertise of a multidisciplinary team. This team typically includes: 

• Investment bankers: Responsible for preparing the business for sale, identifying potential buyers and negotiating terms. 

• CPAs: Essential for managing tax implications of the sale and ensuring accurate financial reporting. 

• M&A attorneys: Experts in drafting and reviewing contracts, conducting due diligence and protecting your legal interests. 

• Financial advisors: Provide guidance on pre-sale personal financial readiness and managing wealth post-sale. 

In addition to external advisors, it’s critical to engage your internal team, such as the CFO and key executives, in the preparation process. These individuals will play an integral role in readying the business for sale and navigating the transaction process. 

Timing is key 

Planning for a business sale should ideally begin at least two years before going to market. This timeline allows for thorough preparation, including addressing personal tax and estate planning considerations, ensuring the business is market-ready and aligning personal financial goals with the transaction. 

Should an unexpected opportunity arise, having a pre-existing plan provides the flexibility to make informed decisions quickly. Even in these cases, consulting with your team and revisiting your balance sheet can help determine whether the offer aligns with your financial objectives. 

The personal side of a business sale 

Selling a business is not just a financial decision — it’s a deeply personal one. For many owners, their business represents decades of effort and identity. Taking the time to reflect on your "why" for selling can provide clarity and confidence throughout the process. 

Additionally, discussing your plans with family members and key stakeholders ensures alignment and reduces potential conflicts. Whether you intend to retire, start a new venture or pursue philanthropic interests, having a clear vision for life after the sale is as important as the sale itself. 

Selling a business is a complex process that requires strategic preparation and a strong support system. By updating your personal balance sheet, planning for financial independence and assembling an experienced team, you can navigate the transition with confidence and maximize the benefits of your hard-earned success. 

While the journey can be challenging, thoughtful planning helps ensure a smooth transition, providing you with the financial freedom and peace of mind to embark on the next chapter of your life.