Is this the Year to Transition or Sell My Business?
There are a number of reasons why 2010 may be an opportune time for printers to develop a succession plan, according to Brenda Bijnagte, a printing and manufacturing principal with LarsonAllen.
She talks about how tax rates, family transitioning, and emotional readiness can affect transactions in the Printing Industry Financial Executives December 2009 newsletter, PIFELines. The following quarterly question and answer was reprinted with permission from PIFE.
Question of the quarter with LarsonAllen’s Brenda Bijnagte
As I start the new year, conversation turns to past New Year's resolutions. Topics such as losing weight, better time management, or money management are always high on the list. However, I've also heard this question in the past and maybe some of you are thinking about this for the upcoming year: is this the year to transition or sell my business?
There are a number of companies that are looking at 2010 as the year of opportunity to transition ownership of their business, and printers are no different. A stakeholder group of owners must consider many areas when it comes to transitioning ownership, but here are a few reasons why 2010 may be the year for you.
Tax rates
While nothing out of Congress or the White House has been solidified, many believe it is inevitable that tax rates will be increasing. Depending on the type of transaction executed, taking a capital gain at the existing tax rates may be advantageous. In addition, while you may believe that the value of your business continues to increase over time, will that growth in value be greater than the tax rate increase looming? Or will the passage of time give you the same cash in your pocket?
Family transitioning
If you foresee a transition that does not include selling, there are two points of interest to consider in light of recent developments. Currently, when a minority interest in a privately held company is transferred, the IRS allows a discount on the transfer value for acquiring only a minority stake. Recent discussion on this transfer tool has not received much media attention, but some of the spending bills being considered on Capital Hill include provisions that would effectively eliminate this discount for transfers between related parties, thus making it more expensive to transfer minority ownership.
The second point of interest to consider currently is the possible reduction in current values. While no one likes to hear that the value of his or her business has declined over the past year or two, a decline may be a silver lining to an owner that is looking to make an ownership transition through gifting. Gifting is an effective way to move business ownership from one generation to another.
Emotional readiness
You have spent a lot of financial and emotional capital building a successful business over the years. At the time of transition, you want to be sure that you are leaving it in good hands. So consider this: as you transition ownership, a transition in management does not have to follow suit. For example, just because you want to pass the ownership of your print shop on to your children and heirs, doesn't mean that they have to run the day-to-day operations.
Each business has a unique situation and owners should talk with their financial advisors before entering into any transaction to understand the complete financial and tax impact to them.
While I don't quite know exactly what my resolution will be for this year, by considering the long-range future of your business, you may determine that this is the year for your resolution to be an action plan toward business succession.
For more information, contact Brenda Bijnagte at bbijnagte@larsonallen.com or 612-376-4677.