Selling Your Company? Maximize the Gains.


If you’re considering selling your company, one of your goals may be to maximize your gain on the sale. Here, discover insights to help.



If you’re considering selling your company, one of your goals may be to maximize your gain. That means getting not only the best price for the company, but also minimizing the taxes you pay on the proceeds. Here are some insights to help with both.

Determine the Asking Price

Multiple factors can impact your company’s fair market value. These include the economy, industry trends, sale prices of similar businesses, your company’s historic and forecasted growth rate, etc.

Tip: To establish a price, engage a professional business valuation firm. In addition, having a CPA firm audit your financial statements can improve your negotiating position later.

Consider the Type of Sale

Asset sales generally appeal more to buyers and thus may command a higher price than stock sales or employee/management buyouts. One primary reason: Asset sales transfer only the tangible and intangible components of the company, such as real estate, computers, furniture, intellectual property and client lists.

Conversely, in a stock sale, the buyer acquires the entire business entity, including assets andliabilities. Subsquently, the buyer may face post-sale risks, such as unsettled lawsuits, environmental concerns, overdue tax bills and the like.

Caveats:

  • Unlike stock sales, with asset sales you may face depreciation recapture from assets you’ve previously depreciated and are now selling.
  • Asset sales may also be more time-intensive for you, the seller. You will need to identify each asset or group of assets. Then, for each, you will need to determine how to allocate it against the overall sale price and calculate its tax basis.

Minimize the Tax Impact

The taxes you will owe on your sale proceeds also depend on numerous variables. (Consult your tax advisor for complete details.) One significant factor is your company’s ownership structure combined with the type of sale.

In general, if you have an S corporation, a limited liability corporation or a sole proprietorship, your tax bill will be about the same whether you opt for an asset or stock sale. That’s because you will pay only the capital gains tax, since profit and loss pass directly to the owner.

However, for C corporations, an asset sale will likely mean a higher tax bill compared to a stock sale. Here’s why:

  • In an asset sale, a C corporation pays the corporate tax, and then shareholders pay personal capital gains taxes on the remaining profits.
  • In a stock sale, there is no corporate tax. C corporation shareholders pay only the capital gains tax on any profit.

Caveat: It won’t help to switch your C corporation to another structure simply to sell. Within 10 years of the status change, you will still pay extra fees for the sale, although the amount will diminish each year.

Tip: If you don’t need an immediate cash influx, you may be able to defer receiving the sale proceeds and likewise defer the tax payment. Or, if you sell your corporation to another corporation, the transaction may qualify for a tax-free merger status. (Rabobank’s Mergers & Acquisitions team can discuss this and similar options with you.)

If you’re thinking of putting your business up for sale, investing the time upfront to carefully consider your strategies can truly pay off in the long run.

An Additional Option

Asset and stock sales aren’t your only options. You may also consider selling to your management team. This can be a particularly good tactic if you have a strong and committed group of key managers eager to carry on the business. Although your sale price may be lower than an outside strategic buyer would pay, you will save on the time and expense you would otherwise spend finding a buyer. This may be accomplished through an employee stock-ownership plan (ESOP). If you make the transition gradually, this can be a way to ease out of the business while simultaneously enjoying added cash flow.

After the Sale: Managing the Proceeds

Besides planning the sale itself, it’s wise to consider in advance how you will manage the actual proceeds. For instance, you may want to:

  • Re-invest the proceeds in another business opportunity
  • Invest the proceeds to produce income
  • Invest the proceeds for retirement or long-term growth

Working with a professional fiduciary — such as Rabobank’s Trust and Investment Management Services — can assist you in determining the right asset allocation for your goals and risk tolerance. A professional fiduciary does not receive commission for helping you, and their first loyalty is to you, the customer.





The information contained in this article is intended for general educational purposes only and is not to be construed as legal, tax, or financial advice. Please consult with your own legal, tax or financial advisor for guidance with your own particular circumstances.