Let’s discuss the Top Decisions You Need to Make NOW to Sell Your Business LATER!
If you read my past three articles, Top Decisions You Need to Make NOW to Sell Your Business LATER: WHEN, WHY, and WHO you’re halfway to setting the foundation for your profitable and successful exit.
If you haven’t read those, I encourage you to as soon as possible.
In this article, I’m sharing the fourth and final decision: WHAT.
Just as important as when, why, and to whom you’re going to sell is establishing what you’re selling – whether the entire business or a portion of it.
You may also consider selling shares or assets. Regardless, there are pros and cons to whatever you decide.
Generally, share sales are preferred by sellers to take advantage of favorable capital gains treatment, while asset sales are preferred by buyers to minimize risk.
Let’s break that down.
If you’re considering selling your shares, depending on the country you operate in, you may be eligible to use the lifetime capital gains exemption, which can be applied to capital gains made on selling the business shares.
Keep in mind, however, the buyer will inherit any past legal or tax liabilities of the corporation.
A share sale involves the sale of the company itself, with the buyer essentially taking over the business.
In a typical share sale, all assets and liabilities remain with the company and transfer to the new owner.
Business owners are often surprised by the benefits that can come with selling a piece of their business.
One of them is it adds a new strategic partner to your team with the goal of getting new capital for another acquisition or developing a new product or service and opening doors to new markets.
However, that’s not the only benefit.
You may also reduce operating costs and efficiency gains if this new owner brings larger economies of scale or greater market credentials.
With a new partner, you will have to decide if you want to stay involved with the business or not.
Maybe you want to remain fully involved in the company, but perhaps you wish to scale back your participation to a purely strategic or advisory role, such as serving on the board of directors.
It’s even possible to completely step down from all involvement in the company management or leadership and become a “silent investor.”
This option can be interesting if you want to sell the rest of your ownership at a later date after the company has hopefully increased in value with continued growth.
Asset sales are preferred by buyers to minimize risks. But first, you need to understand exactly what an asset is.
These can include tangible assets such as equipment and inventory and intangible assets such as goodwill, intellectual property (IP), your website URL, and customer lists.
Asset sales generally don’t include cash; the seller typically retains long-term debt obligations.
Depending on where you live, in an asset sale, sellers are subject to potentially higher taxes than in a stock sale.
While intangible assets, such as goodwill, are taxed at capital gains rates, other “hard” assets may be taxed at higher ordinary income tax rates.
Remember, the deal structure of any transaction can have a major impact on the future for both the buyer and seller.
Many factors, such as the company’s structure and the industry, can influence the decision.
I recommend both seller and buyer consult with lawyers and accounting professionals early in the process to fully understand the issues and reach a decision that will produce the desired results.
Whatever you choose to do, I encourage you to have a discussion with your tax expert to understand what impact your decision will have on your finances.
It’s always better to have this discussion at the beginning of the selling process before you move on to the next step!
If you’d like support or more information to set yourself up for a successful and profitable exit, I invite you to watch my free on-demand masterclass – How to Plan Your Smooth & Successful Transition from Business Owner to Highly Profitable Seller (withOUT headaches, brokerage fees, or accepting LESS than you deserve).
I’d love to know what you want to sell.
Your shares, assets, or a portion of your shares?
Cheers to your next level of success! 🥂