Capital Gains Tax Increase end of 2010.

Higher Capital Gains Tax Rates

Business owners contemplating the sale of their business should consider the proposed tax rate hikes beginning in 2011. As a first step, business owners should consult tax advisors about the significant adverse impact that the proposed tax rates will have on after tax sale proceeds.
 
Bush era tax cuts scheduled to expire at the end of this year will cause long-term capital gain rates on higher income taxpayers to rise from 15% to 20% for years after 2010. In addition, the U.S. House of Representatives has proposed a surtax of 5.4% on the income of high income taxpayers. Assuming the 15% rate is not extended and the 5.4% surtax is enacted, the combined Federal tax rate on capital gains will rise from 15% to 25.4%, an increase of 69.33%.
 
Business sellers need to know about the proposed changes in tax legislation.  Most business owners will be amazed to see the calculation the tax increase will have on their sale price.  Planning for this proposed tax change is likely to cause more businesses owners to strongly consider selling their business so the sale can be closed in 2010.
 
The higher tax rate is not the only factor you should consider when to sell your business, but it is an important one.    Owners who make the decision to sell in 2010 need to start the process sooner rather than later in order to increase the possibility of closing in 2010.

How Do You Want Your Business to Live On?

Ask yourself these basic succession planning questions to see where you are in your planning process.

Are you able to leave the business on your timetable.?
How much longer do you want to remain active in the business?
Do you have the legal documentation in place detailing your wishes if something should happen to you?
Will your business be financially stable enough for the new owner to succeed?
Do you know how much income will you need for the rest of your life after you leave the business?
Will you need to be cashed out when you leave the business or are you able to receive the purchase price over many years?
Who would you sell your business to today if you had to? Do they have the financial ability to purchase your company?
If you sell to an outisde party is your company prepared to get you top dollar?

This is just a start, but if you do not have these basic steps addressed you should start planning today.

Business Owners – Exit Strategy

Privately Held Business Owners,

Too many times I work with owners of privately held businesses where they have not even started an Exit Strategy or completed any Succession Planning. Whether you are planning on selling in 1 year or 10 years you need to preplan for you, your family and your business. Even if you feel the business will be taken over by family member or a long term employee(s) there needs to be a written plan in place that addresses all legal and financial issues.

The first step is getting your Exit Strategy team in place. These are professionals outside of your company that will enable you to maximize your financial benefits at closing. Your team might consist of your Accountant, Banker, Business Broker, Estate Planning Attorney, Certified Financial Planner and Insurance Agent. With your Exit Strategy team you have a group of trusted professionals with differing expertise all working wth your ‘after-sale’ life as a common goal. That is when you can feel confident you have your financial future under control.

The key is to start now and don’t procrastinate. Without a detailed Exit Strategy plan in place you, your family and business financial futures are not controlled by you.

Steve Boylan is President of BEACON Business Group, Inc. with offices in Mequon and Madison, Wisconsin. BEACON Business Group is a Business Brokerage specializing in small to medium sized privately held business transactions in Wisconsin.