Is this a good time to sell your business?
Most statistics I see indicate that small business sales are picking up. One website reports the number of transactions was up in the second quarter by over 6% compared to 2009. That is still 47% below the same period in 2008. The market is not as robust as it once was but good businesses are selling.
For many sellers there can be a compelling reason to sell now. It’s called the Internal Revenue Service. The tax man is a silent partner in all of these sales but this year is probably the best opportunity to reduce the tax bite.
Small business owners hope to have most of the sale price treated as capital gains. If you sell your business before December 31, 2010 and realize a $1,000,000 capital gain, your tax could be $150,000 (15%). If the sale closes after 12/31, the taxes could be $200,000. That’s a 33% increase.
If you own a C corporation, your situation could be worse. Capital Gains taxes could go from 15% to 20%. Dividends could potentially go to 39.6%. On that million dollar transaction above, if the company has retained earnings, the tax could rise from $150,000 to $396,000. That’s $246,000 and it is gone from the transaction. In January the business will be worth less to the seller than in 2010.
I am neither an accountant nor a tax expert. If you are considering selling your business I recommend that you get excellent accounting and tax help. Obviously there is a lot at stake.
The changes above will happen if Congress fails to act before December 31. This type of uncertainty has made it very difficult for business owners to plan. Add this tax uncertainty to the others – health care, financial regulation, energy policy – and you can understand why many business owners are nervous. Business owners should speak out to their representatives to remove this huge tax uncertainty from the marketplace as soon as possible.
If you would like a confidential conversation about your business and today’s market, please feel free to contact me at any time. The sale of a small business requires planning and I can help you do that.
Remember:
With very high unemployment in the country, many out-of-work executives will seek to buy a small business. If you have ever considered selling your business, this may be an excellent time. Please feel free to call me for a Confidential, No Obligation discussion. With a little bit of information, I can tell you how your business might sell in this market. This is an excellent time to market a business that is weathering the current economic storm. The good ones will surely bring a premium. John Hoyt 407-869-6446 Summer 2010
