“Selling your business…Minimizing the “ouch” of Capital Gains”
In the next year or so we are expecting an increase in businesses coming to the market as the baby boomer generation are thinking of exiting.
As a business broker, I am looking forward to the increase in activity and already working with a handful of owners as they prepare for the eventual sale. A recurring point of conversation and concern is the topic of “Capital Gains”. If this is not thought out very carefully and advice sought from either an experienced Accountant / Tax Attorney or Financial Planner it can result in quite a shock on the day of closing.
Many of us are familiar with the “1031” exchange, that is typically used by real estate investors to defer capital gains.
For those selling their business, another option to explore with your advisor is the Inland Revenue Code “453” exchange. In essence the seller “sells” to a “principal” (trust). The structure of how you withdraw proceeds is set out at the beginning and for what period of time (tieing into the seller’s personal tax strategies). Most principals will not charge fees as they receive income on the funds invested over and above the interest that the seller is receiving. The seller may decide to have partial funds at closing with the balance going to the principal. It is considered estate planning friendly, for example…should the seller not want their heirs to have access to all the funds on their passing, it can have a protection plan built in to avoid this. It should be noted that the 453 is illiquid and should the seller require access to the funds before the pre-agreed termination then there will be penalties.
Once again, seek guidance from a professional tax advisor that knows your situation and has sufficient knowledge to direct you along the path that is best suited for your plans for the next season in your life.
“Are you thinking of selling your business ?”
A good business broker will help you through the process of selling your business.
Here at B2 Business Brokers, we work with business owners at the early stages as they weigh up their options. We help turn around the company, provided capital injection if required and eventually find a suitable buyer for the business.
If you are unsure as to the best direction for your business, let’s get a coffee together and chat further. – Call me on 941 730 3757 Guy Breading