During the epidemic, many people decided to start a business for the first time, but with last year’s volatility, veteran business owners may be seriously considering selling their business.
As every business owner knows, it’s been everything but normal in the last year. From worries about the Biden Administration’s proposed tax overhaul to record low loan rates making profitable enterprises more appealing to prospective purchasers, now is a good moment for business owners to reconsider selling it.
Proposed Tax Reform Could Reduce Profits
Despite the fact that the present planned tax law has not yet been passed, tax reform is a very likely outcome. Many business owners are concerned about the projected hike in the capital gains tax rate.
Income from the sale of capital assets has historically been taxed at a rate of 23.8 percent. Income from capital gains above $1 million would be taxed as ordinary income under conventional tax brackets, which could rise to 43.4 percent under the draft regulations.
This proposed change might affect many business owners because the net proceeds from the sale of business stock are deemed a capital gain. That income would be taxed at a considerably higher rate, reducing the net cash received from the sale significantly. It would also be more difficult for business owners to invest in long-term expansion. If this is a worry, it might be a good idea to sell right away.
Make the Most of a Seller’s Market
After a year of uncertainty, the economy is turning a corner: immunizations are widely available, and many firms are beginning to show signs of revival. This expected economic recovery, combined with historically low lending rates and capital costs, makes today an appealing time for purchasers to buy a business.
Businesses that have remained resilient throughout the pandemic and appear to be on the mend are particularly appealing to purchasers. These companies’ valuations are sometimes significantly greater than they were before the outbreak. Due to the fact that many people held on to their money during the epidemic, there is a pent-up demand to invest, and many investors are willing to put their money into growing firms. Furthermore, with reduced market uncertainty expected as a result of the epidemic, now is an excellent time to explore selling and/or transitioning a company to a prospective buyer.