By: Greg Dupuis
Yes, it's a pitch line to grab your attention. Yes, there are some caveats. But, if you have ever considered selling you business, you can potentially net 13% more now versus next year.
It's not what you make, it's what you keep
In my experience, when most owners decide to pursue the sale of their company, they tend to focus on price. The first question a client typically asks is "What's my business worth?" A better question would be "If I sell, how much of the price do I get to keep?"
Net 13% more on the sale
They say two things in life are unavoidable, death and taxes. Right now most small business owners can actually avoid a 10% tax increase. The current capital gains tax rate is at 15%, a historic low. The democratic platform calls for increasing the capital gains tax rate to 25%. Selling your business today for one million dollars nets you $850,000 after taxes (1). With the proposed tax increase, that same sale price next year would only net you $750,000 after taxes. That's $100,000 more in your pocket today, or 13% more than you would get to keep with the proposed rate increase.
All good things must come to an end
Many business owners do not remember that in the late 1970's, the highest effective capital gains tax rate reached 49.875%. As recent as the early 1990's the highest capital gains tax rate was still at 29.2% (2). In recent years we have been experiencing one of the greatest tax windfalls for small business owners - all created by a change of ownership. The current capital gains tax rate was originally part of a stimulus package and was set to expire at the end of 2008 (it was recently extended until 2010).
With elections coming and a budget deficit growing, how long this window of opportunity remains open for small business owners is anyone's guess. Should you consider a sale now? That's your decision, but remember that sometimes you pick the timing and sometimes the timing picks you.
About the author: Greg Dupuis is President of Bridge Ventures, LLC, a middle market merger and acquisition advisory firm. He has completed over 200 transactions in his career. More information about Mr. Dupuis and his firm can be found at http://www.bridgeventuresllc.com.
If you would like to view a short video on other ways timing can effect the value of a business in a sale, visit: http://www.bridgeventures.net/pinnacle_videos/pinnacle_5_Timing.html
Notes: (1) Your actual tax situation will vary depending on your specific circumstances and you should consult a tax professional for guidance. (2) Tax rate data from The Encyclopedia of Taxation and Tax Policy.