For decades now, I have consulted with dozens of businesses when it comes time to sell. There are a lot of decisions to make. One of the most important is HOW MUCH? I get asked that all the time. The good news (for me) is that I do NOT EVER represent myself as some kind of “valuation” expert. There are PLENTY of certified business appraisers that will, for a fee (of course!), give you a valuation. Once that threshold is passed it is time to look at details. Primarily, this can involve how to “allocate” the purchase price among the various assets being sold. Believe it or not, it is this very item that can save a client a LOT of tax dollars. That’s right…..tens of thousands of dollars. This is something I have done many times…..very successfully! It is an art and can only be learned by actually doing it. However, I have seen many tax professionals get bogged down in this arena and give bad advice. The allocation of the purchase price is gigantic and should ONLY be done by someone who has had a lot of experience with it. For example, if you are going to sell your business, it is very likely that the price you charge will net you some “gain” on the sale. If that is the case, then you will be paying Federal and State income tax on that sale. But HOW MUCH tax will you pay? That depends a LOT on how we allocate the purchase price. Really.
One of the biggest concerns, for me, is seeing how big of a down payment you need, at a minimum, so you have the dollars necessary to pay the tax and any remaining business debt. It is entirely possible for you to sell your business, get a “reasonable” down payment (at least, in your mind) and get left owing more tax, in the year of sale, than you got in from the sale! DID YOU HEAR THAT?! This happens ALL the time and needs to adequately planned for or you will get cremated by the tax man in the first year. My firm runs these type of calculations all the time and we make sure you know how much down payment you should demand.
It’s all a LOT OF FUN if you know what you are doing! And WE DO…..call us and come in for a free consultation on this stuff. We’ll make it interesting, profitable and FUN.