Business Brokers are an invaluable resource for anyone looking to sell or buy a private business. From a seller’s perspective, it is often said that an experienced Business Broker will help you get your deal done and significantly increase the deal value due to their specialized training.
However, most Business Brokers measure their success on the amount of pre-tax sales proceeds they generate for clients. But that is not the complete picture. Using a Deferred Sales Trust in the sale process can deliver an even more significant After-Tax Result.
Most private companies are startups in that most of the company’s growth and value are driven by sweat equity and not a substantial initial cash investment. When it comes time to sell, the company carries a very low basis on their books, resulting in the vast majority of the sales price becoming taxable. It is often said that when it comes time to sell, it’s not what you make that is important, it’s what you keep. DSTs were designed with this philosophy in mind.
A Strategy to Overcome Seller Hesitation
Most brokers have market data to review with sellers who feel their business is worth more than what the average buyer would pay. What business owner doesn’t think his company is worth more than it is?
How do you address a seller looking at the actual net proceeds of sale available for retirement or further investment, and it is much less than they had expected due to high taxes?
What if you, as a Business Broker, could mitigate the tax impact for your seller, effectively eliminating the immediate tax implication? Adding DSTs to the conversation will do just that.
When Should a Business Owner Sell?
There is no perfect time to execute your business strategy. When you look at the lifecycle of a business, you’ll see four distinct stages:
- Renewal or decline
The cycle your business is in will impact how sellable it is. This could determine when to open an exit strategy. Less mature yet booming businesses – while showing off how profitable they are – might need more time to grow before getting ready to sell. Seasonality, industry trends, and the consideration of what’s right for the business also play a massive part in putting your exit strategy into play. You don’t need to be profitable, booming, or failing to sell your business. You just have to be ready.
As is the case with many parts of running a business, there is no one-size-fits-all business exit strategy. Ultimately, the exit strategy that’s right for you and your business will depend on several different factors and may change or develop as you progress through your business’s lifecycle.
The best thing you can do concerning an exit strategy business plan is to plan. Even when you start your business, you should consider possibilities about leaving your business. If you’re proactive in thinking about this process—what it might look like, how it might be executed, and what the consequences will be—you’re more likely to have success when it’s time to part ways.
Learn how a DST can help you plan your next chapter.
DST Comparison Scenarios
Explore some of our one-page analysis case studies that help to showcase the benefits of the modern Deferred Sales Trust strategy in real life scenarios. In the section below, you will find case study worksheets that reveal hypothetical scenarios using the DST strategy. These case studies cover different geolocations or compare different assets. Click on any of the images below to download the full view PDF scenario.
Interested in more case studies that dive deeper into the benefits of the Deferred Sales Trust? Click any of the buttons below to find additional information.
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