You’ve worked incredibly hard to build a valuable business. Consequently, many owners dream of selling their business one day, making a substantial return and enjoying life’s next chapter. However, before you start planning how to spend your proceeds, there are two critical considerations that could dramatically affect your final payout.
Don’t Forget the Tax Bill
Here’s what typically happens. Firstly, you start thinking about selling. Then, you begin calculating whether you’ll have enough money for retirement or your next venture. You list all your assets and liabilities, deduct one from the other, and determine that if you receive $X million for the business, you can retire comfortably.
But there’s a significant problem with this calculation. Most sellers list their assets at ‘before tax’ values. In other words, they forget that when you sell an asset, you’ll generally pay Capital Gains Tax. Therefore, that $2 million suddenly becomes $1.5 million, and there’s a sizeable hole in your planning.
This oversight can derail retirement plans, investment strategies and lifestyle expectations. Moreover, it can lead to rushed decisions when the reality hits during negotiations.
Thinking of selling your business? Time to call in your lawyer.
What Are You Actually Selling?
Beyond tax considerations, you need to clarify exactly what you’re selling. This is a fundamental question when selling your business, yet it’s often overlooked in early planning.
Are you selling shares in a company? Alternatively, are you selling shares in a holding company that owns one or more subsidiaries? Or perhaps you’re selling the business and assets that your company owns and operates?
The answer significantly impacts your tax outcomes. However, here’s the challenge – what suits you may not suit the buyer. Consequently, this structure can become a pivotal negotiating point. Understanding how each option affects you will influence your response and strengthen your position.
For instance, selling shares often provides better tax treatment for sellers, whilst buyers frequently prefer asset purchases for depreciation benefits. Therefore, knowing your preferred structure and its tax implications enables smarter negotiations.
DIY Disasters For Selling Your Business
Get Expert Advice Early
Furthermore, early planning gives you time to optimise your business structure before listing it for sale. You might discover opportunities to reduce your tax burden legally or restructure ownership in a more favourable way.
Additionally, professional advisers like BridgePoint Group can help you understand buyer perspectives. This knowledge allows you to anticipate objections and prepare compelling responses, ultimately achieving better outcomes.
Remember, selling your business represents likely the largest financial transaction of your life. Therefore, getting proper advice early isn’t optional – it’s essential for maximising your return and avoiding costly mistakes.
If you’re thinking of selling your business and would like to discuss these considerations with us, please get in touch. We’ll help you navigate the tax implications and structural decisions to ensure you achieve the best possible outcome.