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By Tony DiSotto, SVP, Key Private Bank Market Leader, New England A n abundance of liquidity and mar- ket exuberance in the recovery from COVID-19 made 2021 a promising time for transitioning a closely held business – but the winds of change are now upon us. The historically low interest rate environment had been favorable for many potential strategic buyers, and the historically low tax rate had made the situation favorable for sellers, too. But as interest rates rise and inflation increases, business owners looking to sell or transition their business to a successor need to understand how the market is changing and adjust accordingly. Planning and taking the proper precautions to achieve market readiness with your business is key. Anticipated Headwinds Several headwinds are coming that business owners must take note of and build into their business transition planning: Tax Increases: Taxes and tax planning have always had an impact on transactions and rising tax rates makes tax planning even more important. Needless to say, tax increases make selling a business less desirable; but good tax planning will maximize what a business owner walks away with in a sale. Irregular Business Performance: The pan- demic fundamentally altered how many busi- nesses performed. Some industries were bolstered by the crisis (e.g., tech, healthcare, online retailers, pharma), while other sectors underperformed (e.g., leisure, travel, restau- rants). Those businesses that experienced a boom during COVID-19 may not be able to sustain that growth going forward. On the flip side, businesses that saw their performance fall through the pandemic may receive below market offers from potential acquirers that don't reflect potential future performance. Properly accounting for irregular performance as a result of the pandemic is important for businesses looking to transact. Liquidity Drying Up: During the pandemic, the Fed was able to keep the economy moving with low interest rates and their asset pur- chasing program which pumped liquidity into the market. Rising rates and the pullback of their asset purchases means less access to capital or debt for businesses, which could, in turn, lead to an economic slowdown. This slowdown could impact a buyer's willingness to put up capital for deals, potentially leading to lower offers and cheaper deals. Inflationary Pressure: Rising inflation, due in part to the supply chain disruptions and bottlenecks affecting many sectors, could result in lower revenue on a balance sheet and a higher cost of goods, making a business less desirable for purchase. How to Prepare With these factors in mind, a proactive approach to business succession planning is more import- ant than ever, including: 1. Strategizing early — If you are thinking of selling your business in the next five years, you should start thinking through your strategy now if you haven't yet already. 2. Prioritizing tax planning — It's not so much about the purchase price you are actually offered; it's what you net after taxes that matters. With that in mind, taking the proper precautions and applying proactive tax strategies now is key. This could include assessing the state and federal income tax that the business is paying and what will be paid when the business transacts, optimiz- ing corporate structure to minimize liability, and more. 3. Determining the optimal outcome — Doing your best to integrate personal and business strategy will allow you to carve out the best possible outcome in any situation, despite impending headwinds. Ask yourself, "What do I need to sustain my desired lifestyle and create my legacy?" A financial advisor can help you determine this if you don't know where to start or get stuck in the process. Looking to sell or transition your business? Key Private Bank is here to help. About the Author: Tony DiSotto serves as Senior Vice President and Market Leader for Key Private Bank and leads a team of wealth managers and financial advisors serving clients throughout Maine, Vermont, and New Hampshire. Key Private Bank is a leading provider of wealth management solutions and advice for high-net worth clients, including wealth advisory, invest- ment management, trust administration, customized credit, family office and private banking services. Mr. DiSotto is located at KeyBank's Maine market headquarters at One Canal Plaza, Portland ME, 04101 and can be reached at (207) 874-7102 and Anthony_disotto@keybank.com. S P O N S O R E D C O N T E N T Headwinds Are Coming — Here's What This Means for Your Business Any opinions, projections or recommendations contained herein are subject to change without notice and are not intended as individual investment advice. This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice. KeyBank is Member FDIC. KeyCorp. © 2022. 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We'll handle the numbers, graphs, and charts and help you stay on track as your priorities shift, new opportunities appear, and should challenges arise. No matter where you are or where you want to go, we'll help you get there. key.com/kpb

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