Tax Strategy Impacts the Value of Your Business

Does your business have a tax strategy?  As a CEO Coach I’ve found that an owner is typically more concerned with finding opportunities to boost short-term income than about implementing a tax strategy that delivers longer-term results.

For a business owner, an effective tax strategy helps lead to maximizing the value of their enterprise.  This becomes extremely important when an owner decides to sell or transition their business.  What should an owner do to prepare?

Our members gained valuable insight into the need for a tax strategy at our recent VirtualBoard meeting.  Our presenter was Barry Klein, a CPA and Partner with Babush, Neiman, Kornman & Johnson, LLP.  For more than 25 years, Barry has helped numerous closely held businesses prepare for and execute successful transitions.  Barry stressed that if a business and its owners are able to pay less taxes through sound tax strategies, it could be very attractive to buyers, and hence, result in a greater value at the time of a Sale.

Here are some key points from Barry’s presentation that demonstrate the value of having an experienced CPA and tax advisor looking out for one’s interests:

1.  Here are a few of the ways owners can decide to exit their business:

  • Strategic Sale
  • Just take it.” (Someone offers to buy your business and you accept whatever is offered)
  • Sell to a friendly buyer, locate an acquirer, or sell to VC/Private Equity buyer
  • IPO
  • Liquidate the assets

2.  An Exit Planning Team is essential to generate the maximum Value for the company (includes a CPA, M&A attorney, Investment banker, and Financial advisor).

3.  Audited financials are important as they reassure potential buyers that the numbers are accurate and can be trusted. Business owners should begin having audits performed 2-3 years in advance of seeking a buyer.

4.  Incomplete or missing tax registrations and/or multi-state tax filings can be red flags to potential buyers, so it is vitally important to be in compliance.

5.  Look for potential areas that may provide valuable tax savings, such as:

  • Deferred compensation plans for key employees
  • Qualified retirement plans
  • State and other business tax credits, which offer greater value than deductions
  • Maximize depreciation through Cost Segregation studies
  • Conservation easements
  • Captive insurance

Having an experienced CPA and tax advisor who has helped owners successfully transition their ownership is critical to Long Term Success. The role of your Exit Planning Team is to help you make your company more attractive to potential buyers.  What could that mean for you and your future?  Please let me know if I can help.

Alan