Now is the time to think about selling your small business

December 22, 2010

— Domenic Rinaldi is president and managing partner of Chicagoland Sunbelt, a business brokerage firm that focuses on helping people buy, grow and sell businesses in Chicago and the surrounding Midwest area. The views expressed are his own. —

There were many brokers, accountants and wealth mangers advising clients to sell their business last year in anticipation of the Bush-era tax laws expiring on Dec. 31, 2010. It appeared until very recently that both the capital gains and ordinary income tax cuts would expire on that date, leaving owners subject to at least a 20-percent tax increase on their assets.

Those who are planning to sell in 2011 may be breathing a sigh of relief now that the tax cuts have been extended for another two years. But while two years may seem like a long time, it’s important for owners to begin considering when the right time for them to sell might be. Eventually, these taxes will expire and after this two year extension, we may never see rates this low again.

Unfortunately, the recent recession has had a significant impact on the health and bottom lines of many small businesses and some business owners have no choice but to wait for the economy to turn around before considering a sale.

The good news is that many small businesses appear to be getting healthy again so these next two years may be the prime time to sell. In addition, we are experiencing a period of very high buyer demand – there is a large contingent of buyers, with money, chasing very few deals. This is especially true for baby boomers who may be looking to retire in the near future.

Just think about what it might cost if owners wait until after taxes eventually do go up. First of all, the ‘paper value’ of many businesses may decrease with the impending tax increases. Then consider how much a business would have to improve their bottom line just to make up for the lost tax money. Should the capital gains tax rate increases, as was planned, go from 15 percent to 20 percent, not including any increases in federal and state taxes, your sale proceeds will probably decrease between 11 percent and 15 percent.

To mitigate the effect of these tax increases a business owner needs to grow their top and bottom line by an appreciable amount just to stay even.

So if you feel emotionally and financially ready to sell in the next few years, then now is the time to start talking with your advisors about how to best position your business to maximize the sale price and minimize any tax liabilities.

One comment

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Great post. As the Founder & CEO of a New York based Business Brokerage firm, I would agree with your post. As we know, the best time to start planning for an exit strategy is 2 years in advance of a planned sale.

Gary Kane

Posted by ChimeraStrat | Report as abusive