People sell off their businesses for a wide variety of reasons. As you probably already know, life has a mind of its own, and it can often take some unpredictable twists and turns despite our most well-thought-out plans. Some of the reasons businesses are sold are completely out of the business owner’s control. Thankfully, retirement is the most common reason profitable businesses are sold by their owners, but do you know the other reasons why businesses are sold?
If you are a business owner, surviving family member, or business partner, we have put this article together just for you. In it, we will provide you with the top things you need to consider before hiring a CPA to help facilitate the sale of your business. We also cover some of the finer points of the selling process, what the buyer will be looking for, why CPAs are a critical part of your sales team, how to pay less tax, and how to make the most profit. But before we get into all of that, let’s take a quick look at why people sell businesses in the first place.
Are you considering selling your business while achieving maximum profits? If so, a good accountant (along with a good broker or investment banker and business attorney) will prove to be a critical part of your “sales team.” Not only will the accountant make sure you net the most money from the sale of your business, but they will also provide invaluable peace of mind throughout the entire sales process.
Here are some ways we help our business owners sell their businesses for the biggest returns when it’s time to cash out:
It might be hard to believe, but not all accountants are qualified valuation experts when it comes to selling your business. If you hire an accountant that is not properly qualified, you can very easily find yourself underselling your business while leaving money on the table. And if you list the price of the business too high, it will simply never sell.
Deciding how much a business is actually worth selling for can involve navigating some tricky waters. With over 20 years of serving businesses as a licensed CPA, we have seen just about it all. We know every metric and every rock to look under or consider when determining the true value of your business.
Knowing how and where to allocate the purchase price of your business will have tax implications. So, it’s critical to know what portions to allocate of the purchase price towards categories like hard assets, real estate, goodwill of the company, etc…
Before you ever decide to sell, we will explain to you the pros and cons of selling your business as either a stock sale or an asset sale. The taxes on each can vary widely. Normally, the tax advantages of selling the business as an asset sale will outweigh those of a stock sale. But it’s always best to know the advantages and disadvantages of them both before selling.
As a normal part of selling your business, potential buyers will want to view the financial documents from throughout the history of your business. We will provide these reports to prospective buyers for you. In addition, these financial documents may need to be “recast” to show the actual value of the business.
In some cases (before the sale), it may make sense to transfer certain business assets to different entities or people. It may even make sense to form a brand new business entity or dissolve the existing entity before the sale of the business is completed. Again, this is all done while keeping in mind your goals, tax liabilities, and maximizing your profit in both the short and long term.
We touched on dissolution a bit in the previous step, but we are not quite done dissolving the business yet. Based on how your business sale is structured and completed, a final tax return will need to be filed before the dissolving of the business is considered finished. If you provide financing to the purchaser and continue to receive money from the sale of the business, you will need to file returns for that income also.
As you can see, having the right accountant working for you during the sale of your business will have a definite impact on your bottom line. You have worked so hard to build your business and make it profitable, and now is the time for you to get the most for it.