With the new 2018 tax bill having sweeping changes on business and individual tax situations, it’s important to start thinking about how the bill may impact you in the months to come. While a lot of the details are still coming out and it will take time for everyone to understand the bill. We thought it was still important to bring up some issues that you should be considering if you’re thinking about selling your business.
When negotiating the sales price, many sellers focus on getting the highest sales price for their business. This makes sense but is it the most important factor? WE would say no. The most important number is your after-tax number. The amount that is going to hit your bank account.
Structuring a sale with that in mind opens the negotiations. This may complicate it some, but it can be worth the time and effort to ensure that you’re able to maximize your after-tax proceeds.
One question owners need to consider is: am I selling the assets of the company or stock? The seller and buyer often come from two different vantage points when considering this.
What does the buyer want?
The buyer wants to buy the assets for two reasons:
- If he buys the stock, he is inheriting any seen or unseen liabilities the company may have. With an asset purchase, this is not the case.
- Buying the assets allows him to write up the basis which will allow him to depreciate the assets later. This being a non-cash expense it increases his cash flow.
What does the seller want?
The seller wants to sell the stock because the proceeds will be taxed at capital gains rates.
Another thing that needs to be addressed before negotiations begin, and sometimes even a few years before the sale of the company, is if the company is a C Corp. C corp proceeds are essentially taxed twice and so it is important to work with a trusted advisor to determine the most cost-effective ways to handle these transactions.
There are many nuances that need to be thought through when thinking about the sale price of your business, and even prior to that time. In future blogs, we will explore this in more detail.