Your Two Silent Partners Will Be Very, Very Happy!
You have been approached or made the timely decision to sell your business or a highly appreciated asset. Immediately, advisors kick into action telling you to
increase your multiple, clean up your books, increase your P&L or EBITDA, streamline, improve policies and procedures, paint the building, handcuff the right employees, etc. Did any of them discuss how your two silent partners feel about the sale? Remember, the silent partners who put capital into your company? Shared those sleepless nights? Contributed blood, sweat and tears to survive countless challenges, downward economies and risks?
These two silent partners (state and federal tax authorities) shared annually in your success thus far and plan to take their share (36%-52%) from the net sale of your business or asset–unless you develop a plan to control their financial take away. Regardless of you being a single or multiple member shareholder of a C or S Corp / LLC, the state and federal taxing authorities are betting you will not use any portion of the 74,000 pages of tax code to reduce or eliminate your taxable event. In other words, is it possible to sell tax free or near tax free?
My answer is YES.If you plan in advance!
Once you have made the decision to sell, first, determine the current basis of the asset or company. Next, you need to figure out what the current fair market value might be if you sold today. Your CPA, CFO and a valuation expert can help with this project, but keep this on the down low. You may change your mind!
From those two numbers, your CPA should be able to share what the tax percentage will look like with no tax planning. Then, does it make sense to improve the company value? Which means time, money and resources. Add in market timing, technology changes, politics, etc, all can be a huge player with the timing decision (price) of WHEN to sell! Now that you have a snapshot of what values are realistic to the marketplace, before you begin identifying and selecting how to improve your multiple and sale price, NOW, NOT LATER is the time to explore how to disinherit your two silent partners.
Some tax planning tools must be implemented more than 2 years in advance of the sale to bypass tax exposure, others, may require refinancing or other strategies in order to employ effective tax planning tools. Key here is to select the tax exit strategy early that makes sense for you, as the tax strategy may require certain actions to be completed long before the sale. Simply stated, begin with the end in mind. How much will you keep or lose will be dependent on the tax exit strategy–NOT THE MULTIPLE.
Saving 36%-52% in tax may far outweigh increasing the revenue multiple.
Bottom line, the business owner who waits until a few weeks before close of escrow to explore tax reduction strategies may end up making major contributions to their two silent partners. Now is the time to bring in the tax team. Olympus Tax, Business and Insurance Solutions, Inc. has the team, strategies and experience to help you and your current advisors develop a strategy todisinherit your two silent partners.
Contact Ed Cotney for a personal interview at 530-913-0562. By e-mail Ed@OlympusTax.com