Preserve Leverage! Get Business Tax Planning Services BEFORE You Sell

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You’ve worked hard building your business and now you’re ready to reap the rewards by selling it and starting something new. In order to do that there are a lot of decisions to be made and plans to be laid out. One of the most overlooked is doing some final tax planning for businesses.

Setting your exit strategy up for success involves a number of different factors, and the one with perhaps the most lasting impact are forward thinking business tax strategies.

The Importance of Pre-Planning

You built your business into a company that someone would want to buy through hard work, good decisions, and careful planning. So it makes sense to continue that path as you begin preparing to sell. And business tax planning is one of the key areas to prepare early in the process. This includes not just your federal taxes but looking at potential gift, estate, and transfer tax obligations as well.

Factors That Can Affect Tax Planning For Business Owners

If you are considering an outright sale of your company, looking at entering into a merger, or considering some other change in your ownership status there are a number of areas to address.

Entity structure

The structure that you designate your company as plays an important part in your tax obligations.

Limited liability companies (LLCs) - If your company is listed as an LLC, you can choose to pay your taxes as an S-Corp, C-Corp, or Partnership. This flexibility allows you to develop a business tax planning that is the most advantageous.
S-Corp - The company does not pay federal taxes. Instead, those taxes are paid by the shareholders.
C-Corp - The tax responsibility is split - companies pay taxes on profits and shareholders pay taxes on dividends.
Partnership - Taxes are not paid by the company but are, instead, the responsibility of the individual partners.

An experienced tax professional can help you determine which category your company should fall under so that you can benefit appropriately when you disengage with the company.

Asset vs. stock sales

These are two of the more common ways that a person will sell their business. Under an asset sale, the buyer purchases all of the individual components (and liabilities) that make up the company. If they make the purchase of the company through stocks, they are in effect buying umbrella control of the company.

When taking into account business tax strategies, buyers tend to find more tax benefits under an asset sale, while sellers see more tax benefits with a stock purchase.

Charity work

If you are a regular supporter in the community or have plans to enter that space post-sale, there are some presale decisions you can make to better position your charity efforts.

For example, taking advantage of a Donor Advised Fund (DAF) or donating to a foundation can lower your tax liability. These donations could include “shares” of the business

All of this leads to the importance of maintaining close collaboration with your attorneys and financial team during the sales planning phase in order to achieve the best possible outcome.

Timing is Everything

Developing business tax strategies should happen well before the terms of a sale are discussed in any detail. All of the power you have to assure you are getting favorable terms for your business are in the negotiation period. Working with an accountant prior to that phase of the process will help ensure that you have aligned each of these items through a tax strategy that will provide the best outcome for you, post-sale.

Successful Pre-Sale Tax Planning for Businesses

Selling your company can be a difficult decision. The structure of the deals presented can be complicated and the overall process can be emotional. This makes for a desire to just “get it over with.” And that can lead to regret.

Working with a CPA experienced in business tax planning, early in your process, can take some of that stress away. We’ll be able to help you develop a tax and sales financial strategy that will position you for the best outcome.

If you are starting to think about an exit strategy, schedule a free consultation today.

FAQs

Why should I start tax planning before selling my business?

Pre-sale tax planning should begin well before sale terms are discussed. Working with a CPA early helps align your tax strategy before negotiations begin. That’s the period when you have the most influence over the outcome.

What taxes should be considered when planning to sell a business?

Business owners should consider federal taxes as well as potential gift, estate, and transfer tax obligations. Reviewing these areas early can help support a more successful exit strategy.

How will my business entity structure affect taxes when I sell my company?

Your entity structure plays an important role in determining tax obligations. LLCs, S-corps, C-corps, and Partnerships are all taxed differently, which can affect the outcome when you disengage from the business.

What is the difference between selling a business through an asset sale versus a stock sale?

In an asset sale, the buyer purchases the individual components and liabilities of the company. In a stock sale, the buyer acquires ownership and control of the company through the purchase of stock.

Why is it important to work with attorneys and financial professionals during a business sale?

Maintaining close collaboration with attorneys and your financial team supports the best possible outcome during the sales planning phase. For example, coordinating these efforts can help align tax and financial strategies.

Is tax planning only important after I receive an offer to buy my business?

No. Tax planning should occur before detailed sale discussions begin so that tax strategies can be implemented while negotiating leverage remains available.

How can a CPA help with business exit planning?

A CPA experienced in business tax planning can help develop a tax and sales financial strategy designed to position you for the best possible post-sale outcome. Early guidance may also reduce stress during the process.

Why is timing important when creating business tax strategies for an exit?

Timing matters because the negotiation period provides the greatest opportunity to secure favorable terms. Establishing a tax strategy before negotiations helps ensure important planning decisions are already in place.