Change Your Tax Strategy if You Plan to Sell Your Business Within Two Years

Tax season is here.  If you plan to sell your business in the next year or two, NOW is the time to change your tax strategy to maximize your purchase price, not reduce your taxes.

Let’s do some quick math.  For the purpose of this example, let’s say that you have a business that has been valued at 3.0 times earnings.   Every additional dollar to the bottom line is worth $3 at the sale of the business.  How much is the dollar that does not make it to the bottom line worth in tax savings?  About 30 cents.   Which is worth more: 30 cents of savings or $2.xx in additional cash (after taxes)?

It’s a big difference, but many business owners (and their CPAs) are automatically programmed to reduce taxes.  Some to such a degree that not only are they reducing taxes, they are breaking the law and exposing themselves to no small degree of risk when they go through the business sales process.

It also helps your business broker / M&A advisor.  I can’t tell you how frustrating it is to get turned down by banks on business acquisitions, when I KNOW the cash flow (and value) is there.  But either I can’t divulge it to the bank, or I can divulge it but the bank will not accept the adjustments to the tax returns.

The year or two before you sell is the time to come clean and show all your profits.  It is well worth it!