The End of The Journey-Transitioning

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Business owners are generally pretty competent when it comes to managing their business, but when thinking about transitioning that business they have no idea where to start. Generally, exiting their business isn’t something in their everyday experience and therefore, they don’t know what they don’t know.

Planning for Transitioning

On-the-other-hand, some may understand the exit process, but even so it’s still really difficult to know where to go for help or how to start the planning process. Although they may be aware it’s in their best interest to plan for the future, it’s always a challenge, given the day-to-day demands of running their business, so business most owners procrastinate and planning usually takes a back seat. However, starting the process early can reap enormous benefits and yield significant returns when they exit.

Giving up your Baby

It’s not easy to give up something you might have been doing for 20 to 30 years…there are pangs of fear and maybe some remorse. It’s almost like having to give up your baby, because you have nurtured it for so long it’s and integral part of your life. Tackling this task can be onerous, and very uncomfortable as you are now about to embark on the final stage of your life…retirement.

Taking that First Step

Planning how to exit and under your terms can make you feel liberated once the process is complete…but you have to take that first step. But, exiting can be very different and mean different things to different people. Personal goals vary and not everyone wants to move to Florida and sit on the beach every day or play golf five times a week. Some want free time to pursue another less stressful activity then again others may want to travel the world.

A Well Earned Retirement

So, exiting your business might feel very uncomfortable, but it’s how, as a business owner, you are able maximize the return on the investment of all of those years of hard work and ensure you can fund your well-earned retirement. You owe it to yourself you’re your family to start planning today.

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Is Now the Time To Sell Your Business?

Have you been thinking about selling your business but just can’t decide if now is the best time? Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs….

If you’re still up in the air and can’t quite decide whether or not to hit the eject button, here are six reasons you might want to consider getting out now.

1. You’re less interested in fighting the good fight

A lot of business owners took the Great Recession in the teeth. If you’ve got your business stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.

2. The worst is behind you

Let’s say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, so now you’re starting to see some profit and revenue growth. With your numbers going in the right direction, now might be just the right time to make your move.

3. The tax man is coming

Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.

4. Nobody is lucky forever

If you’re lucky enough to be in a business that actually benefits from a bad economy, congratulations… you’ve probably just had the four best years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.

5. The coming glut

As a business owner, demographics are not on your side. As the baby boomers start to retire in droves, we’re going to have a glut of small businesses coming on the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.

6. The closing window

Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago. Many of these funds have a five-year window in which to invest or they have to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (it’s likely larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back. Don’t think too long about it…as time is of essence.

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Dire Warning for Capital Gains

The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extends Bush tax cuts until the end of 2012. As of January 1, 2013 the capital gains rate will increase to 20%.  Unless there’s intervention and a further extension of the “Bush” tax rate cuts, 2013 could bring a significant increase in the rates for single individuals with income in excess of $200,000 ($250,000 for married filing jointly). Although Congress might take action to minimize the tax increase, business owners at these income levels should start planning for proposed changes urgently.

Despite all these dire warnings to business owners of privately held businesses contemplating the sale of their business, very few have taken heed of the impact to their future net worth and dramatic effect on the proceeds of a business sale in 2013. To mitigate the effect of the potential capital gains tax increases business owner need to significantly grow their sales just to maintain equity. However, if a business owner is emotionally and financially ready to sell, then now is the time to start talking with advisors on how to maximize the business value before a potential capital gains tax increase.

There are a multitude of tax avoidance tactics which can be applied, however time is running out and the sooner a small business owner starts the process the better. To sort out this maze of taxes and how applicable they are to you, retaining a very competent tax attorney or CPA is the first task. In fact, this may not be a bad time to review your exit or transition plan, if you have one, if not, this is something that should be at the top of your agenda. There is no doubt, that selling a business requires expert tax advice, so the earlier you start the better.

 

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