While 2012 may not be the end of the world, it may be the end of the favorable capital gains tax rate as we know it.
The phone is ringing more and more frequently with companies calling us to see whether now is the right time to sell their business. The answer: it may be.
Reason to Sell #1: Capital Gains Increase
One significant tax reason to consider selling a business is the pending change in the federal capital gains tax. A recent Forbes article (“Capital Gains Taxes Are Going Up”) forecasted an increase in capital gains from 15% to 25% effective January 1, 2013.
Reason to Sell #2: Economic Recovery Means More Buyers and Less Sellers
Another consideration involves the current economic recovery. We are coming back from an economic climate that forced many companies out of business – the companies that have survived and are beginning to see improvement in performance are in a unique position to attract buyers and potentially get a premium for their business.
Not Sure You’re Ready to Sell Your Business?: “Re-cap” as an Alternative to Selling
If you’ve considered selling your business but feel that now is not the time, you may want to consider a private equity recapitalization, or “re-cap.” We have noticed that re-caps are becoming more popular, particularly in the past six months.
Re-caps involve Shareholders rolling forward some equity (typically 5-20%) and partnering with private equity. Shareholders and private equity work together to build the business on a faster trajectory, which is made possible by the addition of outside management support and fresh cash.
Re-caps are attractive to Shareholders, as they take a substantial amount of cash “off the table,” grow the business over 5 to 6 years, and then cash in again with the sale of the business. This can be a great way to secure retirement.
Every situation is unique and there are numerous other reasons why it may make sense to start the ball rolling if you plan to pull some cash out of your business before the end of 2012. Please contact us
if you’d like to confidentially discuss your options.