Selling a Business or Advising a Seller? Tips to Navigate the Fiscal Cliff
With about 10 weeks left in the calendar year, it would be difficult for even the most motivated business owners to complete their company’s sale by Dec. 31, unless they’re already in process.
Some owners are hustling to get that process done to avoid falling over the tax cliff set to take effect Jan. 1. But the principles of selling a business apply no matter what the calendar says, according to Scott Miller, CPA/ABV, an expert presenter for the Oct. 30 Journal of Accountancy webcast, Inside Buyout Basics and the Tax Cliff: A Timely Combination.
Some industries were hit particularly hard during the recession and subsequent sluggish recovery, and now there might be an opportunity to return to pre-2007 levels of profitability, says Miller, the founder and president of Enterprise Services, Inc., in suburban Milwaukee, which specializes in valuation for middle-market companies.
“If you’re in an industry that’s on the rebound, or you think you’re poised for growth, then your gains could offset the tax increases,” Miller says. “Don’t push the envelope just to beat this tax cliff.”
Businesses already planning a sale are trying to complete the transaction by Dec. 31 for tax advantages. For that reason, Miller’s calendar is full through the end of the year.
“I think CPA firms and valuation firms are going to be very busy,” he says. “With four full weeks between Thanksgiving and Christmas—for us, that’s going to be a godsend.”
On the webcast, Miller, who wrote a book on buyouts and an article on the subject in the October issue of the JofA, will discuss types of inside buyouts for business owners, principles that will apply long after the tax cuts have expired. But one strategy could be in play before Dec. 31 for family-owned businesses: gifting some of the business’s equity to family members.
“If you have a family-owned company that’s been anywhere near successful recently, you should be considering gifting,” he says.
Why? The lifetime estate and gift tax exclusion 2012 is about $10 million for a married couple and $5 million for an individual. But those exclusion amounts drop to $2 million for a couple and $1 million for an individual on Jan. 1 unless Congress acts.
“There’s buzz (about gifting) in a lot of our referral services,” Miller says. “It’s taken hold. Finally, folks are getting it.”
Beyond gifting, businesses have other buyout options: selling to a group of key employees, the key employees with outside financing, employee stock ownership plans, or employee cooperatives. No matter the exit strategy, Miller says, one sentiment is nearly universal among owners of small and mid-size businesses.
“Most of these owners like to sell to people they know,” he says. “With inside buyouts, the selling shareholder controls the process.”
Neil Amato, Senior Editor, American Institute of CPAs. Neil works with the Journal of Accountancy and CGMA Magazine. He writes mainly about management accounting and previously worked as a sports writer, sports editor and business data analyst.
Man Jumping Over Cliff image via Shutterstock.