How Small Business Owners Can Get the Most for Their Businesses When They Sell

Business owners who are planning to sell their business in the next several years should start to shift their strategy from tax minimization to value maximization. They will get much more in value when they sell than they would have saved in taxes.

April 17, 2002
Lowell, MA

With tax returns for 2001 completed, small business owners are huddling with their accountants on strategies to minimize taxes for 2002. Although tax minimization is the intuitive course of action, owners who plan to sell their business over the next few years should consider a surprising alternative: a Value Maximizing strategy where the owner actually pays higher taxes, according to Dr. Stanley Feldman, Associate Professor of Finance at Bentley College and Chairman of bizownerHQ.com

Paying higher taxes means the business is reporting higher taxable income. Higher taxable income justifies a higher sales price for the business. Dr. Feldman notes, A serious buyer focuses on recent business tax returns. While sellers try to paint a rosier profit picture, buyers base their offers on the 'bottom line from the signed, official statement of the business - the tax return.

According to Dr. Feldmans research on the value of private businesses, each additional dollar of pre-tax earnings generates $5 to $15 of additional value when the business is sold, depending upon the business riskiness and growth prospects. The payback from dollars saved in taxes never matches the loss in value from reporting lower earnings.

For the 2+ million baby boomer owners planning to sell their businesses upon retirement over the next several years, now is the ideal time for them to shift to a Value Maximization strategy", says Dr. Feldman.

Value Maximization involves disentangling business finances from the owners personal finances, a process that takes a few years. Owners and their accountants should round up the usual suspects" -- family members paid at above-market salaries, company cars, equipment leasing and office rental from closely controlled companies, country club memberships, and other income-reducing techniques -- and start implementing changes to put the business on an owner-independent basis. This leads to higher reported earnings and, consequently, higher taxes.

Dr. Feldman says, Potential buyers want to verify the true cash flows of the business. By reporting the business financials on an owner-independent basis, you will get the best return for your hard work and risk-taking when its time to sell."

bizownerHQ.com provides business valuation services nationwide through its Valuation GURU expert system, proprietary databases, and secure Internet platform. For more information visit www.bizownerHQ.com.

Contact:Roger Winsby   978-654-6092
   bizownerHQ.com   roger_winsby@bizownerHQ.com
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