Whatever your motivation for selling your business, you’ll only get one chance to maximize the return on your years of hard work. Do it the right way and you could get the price you want and reduce the impact of capital gains and estate taxes. Do it the wrong way and you might end up with a hefty capital gains tax bill and estate planning headaches.
Consider your potential buyers. Are you planning to place your business on the market for anyone who’s interested? Or, do you want your business to stay within your family? Might your senior managers or other employees be interested in purchasing your business interest? If so, do family members or managers have the means to buy it? If an outright sale isn’t financially possible with your preferred successor, then a strategically planned installment sale may be a viable solution to complete the purchase.
With an installment sale, you ask the buyer for a down payment and a note covering the balance of the purchase price. You report taxable gains as you receive payments from the buyer, rather than all at once in the year of sale. You also must report the interest payments you receive on the note as ordinary income. When correctly structured, an installment sale can “freeze” the value of the business at its sale price for tax purposes. So, if the business continues to increase in value, your estate will not owe taxes on any appreciation generated after the date of the sale.
To help maximize your financial return on the sale of your business, consult a financial planning professional before you put your business on the market.