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KSM Blog | Katz, Sapper & Miller CPA

Maximize the Value of Your Business Through an Exit Strategy

Posted 7:24 PM by

Every business owner will eventually transfer their business interest. In some cases the interest will be transferred as part of a planned exit strategy. In other cases the transfer will be “forced” due to a significant change in the life of the owner such as death, disability or divorce. The important point to note is that it is not a matter of IF your business interest will be sold, it is a matter of when and what will trigger the sale. The key difference between a planned exit and an unplanned exit is the steps taken to maximize the cash received by the departing business owner (or their estate).  

When planning an exit strategy, there are three key questions every restaurant owner needs to ask:

1. Who could be a potential buyer for the business?

Potential buyers may include:

  • A family member
  • A current partner
  • Key management personnel
  • A competitor
  • Outside party

Planning ahead allows the seller/owner to position the business with a buyer who appreciates the business value, therefore providing the opportunity to maximize the selling price.

2. How much is the business really worth?

Unfortunately, many business owners have an inflated opinion on the value of their business. The business is worth what a qualified buyer will pay for it.  A thorough exit strategy will include a professional appraisal of the business’ value. An appraisal will also provide the business owner with information regarding the factors affecting the value, therefore creating the opportunity to improve these factors and ultimately value. Note:  If the IRS disputes the sales price or if there is disagreement between family members in an estate, a professional appraisal will provide a valuable point of reference as well.     

3. What are the tax implications of transferring the business?

From a tax standpoint there are basically three ways for your business to be transferred. A stock sale is considered a capital transaction and will be subject to the capital gains rules. An asset sale may include capital gains as well as various other ordinary income items. A gift will be subject to the gift and estate tax rules. Seeking a professional review of the tax implications of transferring the business interest will provide the opportunity to plan for and hopefully minimize the tax burden to the seller.

Keep in mind that an exit strategy is a fluid plan. Periodic reviews will be needed to account for changes in the market place, tax laws and the objectives of the owner.

About the Author
Jim White is a member of Katz, Sapper & Miller’s Restaurant Services Group. Jim guides restaurant owner-operators through tax compliance issues and helps them plan strategies to minimize tax liabilities and maximize savings. Connect with him on LinkedIn.

 

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Comments (1)
Terry Hopper wrote
Nice post. Thanks for sharing.
Posted Sep 29 2014 8:09 PM
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