Many business owners from the baby boomer generation are approaching their time for retirement. This generation has worked hard building businesses that are completely capable of sustaining themselves and their children; however, now that it is time for the next generation to take the lead, they are finding that their children have their own ambitions. Now they are left with a question: who will take over the business?
Many business owners throughout the U.S. are looking for an exit strategy. Among the many questions to ask during your decision is the question of when. Currently the capital gains tax is at 15%. Recent news reports show that this rate is expected to increase to 23.8% in 2013 as a result of the Obamacare investment surtax. In other words, if you have built a $2 million capital gain from the years you have spent building your business you can expect to pay an additional $176,000 in taxes. Imagine the tuition you could pay for your grand kids with that.
One client expressed that he thinks he can increase the value of his business if we wait a few more months while he locks in some additional contracts. While these will increase the selling price of his business he may end up with a less amount of take-home capital because of the extra amount he will pay in taxes. One thing you may consider as a business owner is how much longer will you wait to get your company on the market and sell your position of ownership. Waiting one more year just to get that additional step in your valuation may not prove to be as profitable as you may think.