In today’s economy, it’s almost impossible to predict a company’s future much less its value on the open market so the timing of the sale of a business is critical. A substantial amount of money can be left on the table if selling to early or too late. While there is nothing we can do about the state of the economy, there are steps business owners can take to make sure they time it right and maximize the selling price. When the timing is right for a business to sell, it will attract more interest from buyers, more offers which will ultimately lead to a higher selling price. Here are some considerations you should focus on whether you plan to sell tomorrow or further down the road.
Of course a business owner wishes to sell their business at peak value; this is not easy. I’ve heard from many business owners that it is hard for them to consider selling when things are going so well for them. However, this could be the exact time to put it on the market. To attract multiple buyers, you need a thriving business which could also lead to multiple bidding and a higher selling price.
Too often I see business owners scrambling to sell their company after they have already lost a major customer or a key employee. Be assured that these types of situations will make potential buyers wary and they might use them against you in the negotiation process. The best time to get the most money for your business is when the buyer can find the least amount of problems.
While selling at peak value is the best scenario, most business owners have very little leverage for a sale because of their declining numbers over the past few years. Because of this, a backlog of business owners are now lined up waiting to sell as soon as the economy improves – this means more competition. Signs of recovery are becoming more apparent each day so timing the sale of your business is even more critical.
Most business owners are unaware that there is a selling season for their particular business. This is a factor that should be taken into consideration when you are ready to sell. If you know your business, and I hope you do, then you should know what time of year your financial situation is at its highest. Most business sales take 8-10 months so plan that into your strategy because you want the timing of the sale to coincide with your businesses busy season and peak performance. This would also be a great opportunity to help plan the transition. When your business isn’t as busy, the new owner will avoid costly mistakes by learning the business during a less stressful time of the year.
The current tax hike may have a dramatic effect on the proceeds of your business sale so you need to plan for this as well. When you dispose of a business asset, you must report the disposition to the IRS. The amount of tax that you will owe depends on a number of factors.
Among these are
- Whether you had a gain or a loss on the sale
- How long you owned the asset
- The type of asset
- Your taxable income
- Whether you are required to “recapture” depreciation that you claimed on the asset
- Whether you receive the payments in one year or spread over a number of years
There are several important exceptions to the standard rules regarding capital gains treatment. If you sell to a related party, usually a close family member or a controlled business entity, then you might not be eligible for the lower capital gains tax rates. If you are contemplating such a deal, then you should talk with a tax adviser before you go ahead with your plans.
At some point, almost every owner will have to experience selling a business. It is important not to rush into selling a business whether you’re planning to retire or start another company. Even if you don’t plan to sell for many years, you should plan your exit strategy and make sure your business is heading in the right direction to allow for the perfect timing of its sale.
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