Selling your small business can be financially and personally rewarding. However, selling a business is an intricate undertaking. Many business owners are not familiar with the complexity and possible tax implications of a sale.
Preparation is a must before selling your small business. You will need to make sure your financials in order, obtain an accurate business valuation, and develop a tax planning strategy.
Have Accurate Financial Statements
The importance of preparing your business financials before listing your business for sale cannot be overstated. Potential buyers will scrutinize every aspect of your business, including financial statements, balance sheets, profit and loss statements, tax returns, equipment lists, product inventories, and property appraisals and lease agreements. The key point around this process is to get ahead of it – do not wait until you are ready to list the business for sale or hire an investment banker to get your financial statements in order – the accounting clean-up and financial statement preparation process can be very complicated and time consuming. Learn more about financial statements.
Prepare Financial Forecasts
Any prudent buyers will look for very detailed and supportable financial forecasts when acquiring a business or company. The forecast should typically cover multiple future periods/years, and be built up using detailed sales data and budgeted operating and G&A expenditures. Be prepared to explain it in detail to a potential buyer and be in a position to have responses to inquiries around this area.
Get a Business Valuation
A professional valuation (an idea of what your business is worth) will give you the basis for evaluating buyers and help you set your asking price. It will also highlight weak areas that, hopefully, can be corrected prior to putting the business on the market. Valuations are typically performed by qualifed business appraisers which are specialists and are not handled by many CPA firms – Sousa & Weber can make referrals to qualified business appraisers.
Understand the Tax Consequences of Selling
It is important to figure out how much you’re going to pay in taxes before the sale of the small business even takes place. If you don’t, the tax code can significantly reduce your net sale proceeds. How the government taxes income, the structure of your company, and the terms of the sale are the most important tax issues you need to review.
Retain Professional Help
A serious buyer will expect perfect financial records, as well as an accurate valuation. Failure to meet those expectations may discourage true buyers and could result in a lower sale price. Knowledgeable tax advisors like Sousa & Weber are invaluable in navigating the intricacies of the tax code, helping you maximize profits from the sale by structuring it to minimize tax liability.
Our expert team can present your business positively and accurately during the sale process and help assure all due diligence has been handled.
Contact Sousa & Weber for assistance in preparing your small business for sale.