LSO Award

How many of you business owners are familiar with the TIPRA?  That’s the Tax Increase Prevention and Reconciliation Act of 2006, which extended the historic low 15% capital gains tax until December 31, 2010.  At that time, the TIPRA “sunsets,” and reverts to the 2002 capital gains rates in 2011, unless the rate cuts are extended or made permanent.  Given the challenges in our economy, all bets currently are on the tax rate increasing to at least 20%.

So, if you have been in a holding pattern, anxiously awaiting an economic recovery, perhaps this, along with glaring statistics (if you care to do a bit of research) pointing to significant decreases in business valuation multiples, you may begin considering other options. 

A good place to start would be with your exit plan.  Here’s a poignant question for those of you who assumed several years ago that you would have retired by this time: 'Have the drastic changes in the marketplace and in the economy severely affected the choices you’ve made regarding your current lifestyle?  Have you put your retirement, or any other kind of life passage, on hold as a result of how you perceived that the economic crash that began in 2008 affected your long-term financial wellbeing?'  If you answered 'yes' to these questions, the next question is essential to consider: 'How long do you wish to remain in limbo?'

Well, if you think that enough of a recovery will occur in the next 3-5 years, to put you back on the track you envisioned several years ago, you may continue running your business, and living in personal limbo regarding a transition into a new phase of life-after-the-business.

If that sounds tiring, and unacceptable, you actually have several options.  First, you must be willing to look and think outside the box.  Secondly, it may be time to put yourself and your family first – above taking the last nickel out of your business.  It is possible that you may have to reconsider what your retirement will look like – a reality check, if you will.  And third, if you want to maximize the value of your business within the next few years, this may be your best chance, if you are an owner of a small, privately held business.  

Now I’m not saying this because we are M&A specialists.  After the crash in 2008, we did recommend to our clients to wait before putting their businesses on the market. Now however, there are significant indications, pointing to opportunities that may be short-lived:

1. interest rates are at an historic low for buyers, making this an excellent time for acquisitions
2. banks are requiring significant down payments from well qualified buyers, to your advantage
3. while multiples have fallen some, they are predicted to continue dropping – you snooze, you lose
   
4. capital gains taxes are at an historic low, predicted to rise significantly in a few months
   

The handwriting, for some is on the wall.  How about for you?

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