Business Sale Planning
Business Sale Planning
Business Sale Planning is important for any business owner. Upon the formation of the legal business entity, owners should consider the tax implications of the ultimate sale. Most buyers of a business will prefer to structure the transaction as an asset sale as opposed to buying the stock of the company. If an entity is organized as a C corporation, the taxes owed following an asset sale may be nearly double the tax liability if the entity were organized as an S corporation.
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Even businesses that are sold in multiple transactions benefit from maintaining “flow-through” tax treatment. Private equity investors generally seek out flow-through business entities (i.e. those which are not taxed separately at the corporate level).
Business owners should understand the tax attributes of their company years in advance of a sale. On the eve of a sale, usually it will be too late to make changes. A lack of tax planning could wind up costing business owners millions in extra taxes, effectively raining on the parade of the closing day.
Some owners interested in selling a California business believe they are destined to succeed in getting the price and terms they want because their businesses are so desirable. Others think that whether or not they can achieve a satisfactory deal is a matter of chance.
Both opinions usually are wrong.
The reality is, there are ten specific factors which determine the likelihood that a seller will get a deal at his or her terms. Taking those factors into account when preparing the company for the market will increase the chances of achieving a successful sale. And the focus should be on those factors that are weighted more heavily than others on the probability checklist for sale.
Studies reveal that 70% to 75% of campaigns to sell a small or mid-sized California business fail to accomplish the desired objective. In other words, about three-quarters of the businesses offered for sale in California are never matched with a business buyer. The 25% to 30% of owners who are able to find a buyer at satisfactory price and terms usually are those who implement the ten factors on the salability checklist above when selling a California business.
*This is in no way legal or financial advice, please consult the correct professional.