A Michigan entrepreneur may not think about getting rid of a business at the start of operations. However, experts indicate that this is the very point at which the sale of business should be considered. Planning should continue from this point going forward. As an example of the importance of the issue, statistics indicate that an estimated 12 million small businesses in the nation will be sold over the next 10 years, attributed primarily to the imminent retirement of many Baby Boomers.
Expert recommendations include the importance of considering the tax consequences of a sale. In most cases, prospective buyers prefer buying a business as an asset rather than buying stock in an organization. In such a situation, the taxes can be much higher for a C corporation than for an S corporation. Flow-through entities, which are those that are not separately taxed at a corporate level, are typically preferred by investors. Failing to understand the tax issues in advance could lead to a high tax burden as a sale is made.
The quality of one's records can make a big difference in the potential selling price. Keeping track of the values of physical and intellectual property and a strategy for identifying and protecting these properties is crucial. Contracts and relationships with vendors may be equally important. Furthermore, accounting, qualifications and contracts should be current, and due diligence should be exercised well in advance of a sale to eliminate issues that could reduce the value of the business.
Legal counsel may be important during the transaction process. By involving a business lawyer in establishing a business plan in the beginning and to help with oversight, it may be possible to streamline the preparation process when preparing for a sale.
Source: Forbes, "Start Planning For The Sale Of Your Business On Day One", David King, December 19, 2014