As a transportation company owner, the decision about how and when to sell your business will be one of the hardest you will ever make. It will also be one of the most important. Maybe you have children or other family members who will continue the business. Maybe you have already been approached by an interested outside party. Whatever your succession plan, there is potential for significant income, gift and estate taxes related to the sale of your business. This could mean business assets being sold to pay these taxes, leaving little for your beneficiaries. Business succession planning must include ways to continue your business and to do so with the smallest possible tax liability.
The first step in selling your business is to determine its value. It is critical that any transportation business owner knows and understands the objective value of their business. There are several key factors that may help determine the value of a business: cash flow, earnings before taxes and fixed assets. However, to get the best and most accurate measure of your company’s value, you will need to consult a business valuation specialist. Smith Schafer works with transportation business owners to uncover the true value of their companies’ tangible and intangible assets. The resulting valuation report provides an accurate baseline measurement that informs your strategic plan.
Sale of the Business
If and when you sell your transportation business, you will receive assets that can be converted to cash. If the sale occurs before your death, it will likely be subject to capital gains tax in the year of the sale.
One option for selling your business while minimizing your tax burden is to have a buy-sell agreement. A buy-sell agreement is a legal contract planning the sale of your business to a willing buyer at a predetermined price. The buyer may be a family member, a key employee, an outside party, or the business itself. The agreement should specify what events will trigger the sale – events such as your retirement, disability or death. When any of these events occur, the buyer is legally bound to buy your business from you or your estate at the predetermined value. As long as the sale is for the full fair market value of the business, it is not subject to estate or gift taxes.
Transfer of the Business
Perhaps your succession plan includes transferring some or all of your transportation business interest to a family member or key employee. This may be done through a systematic gifting program. In 2017, you are able to gift up to $14,000 per individual without incurring a gift tax liability. If you and your spouse own the business, each of you may gift $14,000. Likewise, if you are transferring the business to an individual and a spouse, you may gift each of them $14,000. Transferring your business this way allows you to transfer a significant portion of your business without any gift or estate tax liabilities. However, depending on the value of your business, you may not have the time required to transfer your entire business interest in this way.
The transportation industry is known for high employee turnover so proper succession planning will help ensure your company’s success. To help you through the succession planning process, Smith Schafer offers services designed to help Minnesota businesses create and execute a successful transition strategy. Whether you need help creating a succession plan or assistance with implementing various stages of the plan, our professionals can guide you. Contact us today to schedule your FREE 30 minute consultation.