How the Tax Climate Can Affect the Sale of Your Business

Sale of Your Business

How the Tax Climate Can Affect the Sale of Your Business

Increases in taxes, specifically capital gains taxes, can directly affect and hinder your goal of selling your business. A buyer considers purchasing a business based on their projections of the long term returns on their investment. When the threat of taxation becomes inevitably apparent, a buyer will readjust his opening bid to a lower amount than he would consider otherwise. This is because a buyer will realize that he has obligated himself to guaranteed diminishing returns.

This becomes clarified when one realizes the specific consequence of an increase in the taxation of capital gains. When a buyer purchases a business, he is immediately taxed a percentage on the total value of the business, simply based on the fact that he has increased the amount of capital that he owns. Given this reality, the buyer will seek to pay less than otherwise for any business that he may consider purchasing, and this sentiment will be share by all buyers and the overall valuation of the market will drive the prices of businesses down.

Obviously, this does not bode well for business owners who are looking to get the largest profit possible for the sale of their business. When considering placing your business on the marketplace, it is best to seek the advice of a professional whose expertise and experience can help an owner decide if it is the right time to sell their business. Contact Moshe Hazout at Transworld Business Advisors today!