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Buyer’s Intentions for Getting into Recapitalization

Whenever we talk about M&A transactions, we know that acquisition is a tier ahead in terms of the role played in the transaction. This means that the acquiring or the buying side always have a significant amount of leverage over the other party because it is the selling party that needs the money more. But if we consider looking at this transaction under a different light, we can see that even the buying side has certain issues regarding the transaction’s course. This can be said after considering aspects like, “valuation of the company”, and “determination of a negotiable purchase price”. These aspects stand tall as a proof of the fact that buyers don’t always enjoy the upper hand.

But this convention hardly matters when it comes to the intention with which both the parties enter in the first place. If we take liberty to omit liquidation in this analogy, we can clearly see the main intention behind the sellers’ decision, but it’s not too easy when t comes to the buyers. Even if there are professionally sound Business Brokers with the buyer, but their intensions are still mysterious because it depends on how well the buying side is at perceiving the current situation.

PSYCHOLOGY OF THE BUYING SIDE

Although it is not important to mention the preliminary intentions of the buyer, but it can be helpful in assessing how the demand curve took its course throughout the transaction. Its importance in the transaction is based on the fact that it allows the hired Business Brokers to have a detailed report of the entire shift of their client. But it’s also a fact that not every time when we talk about the intensions of any of the parties, we find it difficult to assess the actual intension. If we take a look at the bigger picture, we can see that building a wider and stronger customer base is the most important thing for both buyers and the sellers as far as recapitalization is concerned. But being a visionary at the same time is also very important because the decisions that they make today are going effect their entire alliance in the coming future. That’s why it’s important for the buyer to focus on trending products that have the potential to grow in the market. And that’s why it has become one of the most important intentions with which new companies are entering M&A transactions.

A SMART MOVE TO INCREASE THE CUSTOMER BASE

Recapitalization can surely be seen as a smart move for increasing the number of customers because it gives both the parties the opportunity to explore a new unexplored market. If we take a closer look at this whole ‘recapitalization’ proposition, we can say that every M&A transaction under this arrangement is structured in a way that it benefits both the businesses equally. To understand this better, we can take a look at the current acquisition of Dark Sky by Apple. This transaction not only seems as a smart move but also feels like urgency, considering the current hype of Apple products amid the pandemic.

So what do we Learn from this Transaction?

Just the fact that knowing How to Value a Business is a concern that should be shared by sellers and buyers along with the brokers because it determines whether or not, the transaction will be successful. If Dark Sky would have been unaware of its product, i.e., accurate local weather forecasting, and if it had been settled down for liquidation, it would never get the chance to grow in the market alongside the most valuable company in the world. The same goes for the buyer, if Apple wouldn’t have been a visionary as it always has been, it would have been subjected to a greater loss.

On a concluding note, the buyer should always be a visionary, but the seller also needs to be patient in terms of getting into the transaction.

Call RMBA at 303-474-5582 to know more about other aspects of M&A transactions.

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Tax Considerations While Selling a Business

As we speak about selling a company, we read many a number of pieces on topics like benefits to both the parties, requisites that are needed to be met before getting into the transaction, and many more. If we talk about a collective secondary research about M&A transactions, we will find that every other piece we look at is a subtle integration in the broader idea. Keeping the essence of this statement as a premise to this analogy, let’s continue to contribute further to the idea of selling a business by talking about some important tax considerations involve while you think to Sell a Business.

CONSIDER NEGOTIATING EVERYTHING IF SELLING A SOLE PROPRIETERSHIP

When we consider selling a business, we consider all sorts of sellers, from those who are looking for recapitalization to those who want to liquidate their firm. Among all those sellers, there are a few who are looking to sell a sole proprietorship firm. As we all know that in every M&A transaction mostly all the assets fall under capital gains, which eventually is taxed as per favorable tax rates.

Before hiring Business Brokers and starting on with the transaction, the selling party should understand the importance of the fact that allocation of the purchase price for assets like inventory is negotiable from both the parties. Price allocation of all the assets of the business depends on both the parties and their consent to reach to a point where they both get what they hope for. As per an IRS form, the Asset Acquisition Statement made seven classifications to the assets of the business for the ease of price allocation. This includes both capital gains assets like goodwill and other assets like equipments and property. Terms of sales are totally negotiable depending on the class and it can benefit the selling party in the long run as it can minimize the tax cut from the proceeds the seller receives.

USING AN INSTALLMENT SALE

Another consideration to lower the tax impact on the seller’s part is choosing to structure the sales deal as an instalment sale. Using instalment sale and making the first payment after the year of sale, can reduce the tax pinch on the seller’s part but it also guarantees the uncertainty on the buyer’s front regarding the instalment sale reporting of assets and receivables. This uncertainty might put the seller in an unfavorable position but if the buyer is trustworthy this proposition can be beneficial.

SELLING THE FIRM TO THE EMPLOYEES

If you’re on the selling side of the transaction, as all the others, you too need to Value your Business first. This will make you think about the impact of taxes after the transaction is complete. And this note brings us to our next point which indicates the practice where you can choose to sell your business to your employees through employee stock ownership plan or (ESOP). This implies that the seller have stipulated buyers who would agree to pay in cash for any reasonable price the seller might set. The seller can then show the proceeds to defer tax on his gains.

View source: https://rocky-mountain-business-advisors.blogspot.com/2020/07/tax-considerations-while-selling.html

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Tax Aspects If You Want To Sell Your Business

As we all know, coming to a mutual consent on the purchase price offered by the buyer is always subjected to a number of negotiations on the seller’s part, it can also be viewed as a consequence of what he has to pay as the tax amount after the sale is done. Whenever a seller sell his business, he is subjected to a significantly large tax bill that can make him take away only a portion of the total purchase price after paying all the taxes.

As we speak further about the tax amount that is supposed to be paid by the seller, it’s also important to remember that if enough attention isn’t paid, the seller might have an unsuccessful sale and as for the buyer, he won’t be able to analyze if he really wants to buy the business or not. For a buyer seller looking, “How to Sell my Business”, it is a known fact that the tax amount payable on his account is based on whether or not the money the seller made from the sale is capital gain for him, or not.

CAPITAL GAIN FOR THE SELLER

As we earlier learned, the tax amount a seller pays after the sales of his business, depends totally if he had any capital gain from the proceeds of the sale or not. Speaking about capital gains, for a seller, the profit he garners from the proceeds of the sale is always considered capital gains. As a seller, when you put your business up for sale, and look for Business Brokers around, you notice all of them will have the same analogy towards you getting to pay the tax for the profit you gained from the sale of your business, because it includes the transfer of all the capital assets and the quoted purchase price is framed in a way, that it includes the possibility of allocating a portion of the purchase price to both the individual assets and intangible assets.

ALLOCATING SALES PRICE

When a seller understands, How to Value a Business, he knows how important it is for him to keep a detailed record of all the existing assets and liabilities of the company. However, when it comes to setting up a purchase price, the buyer always seem to be a bit sceptical especially when he is to take over the entire business. Keeping everything in mind, the seller comes up with a detailed approach to calculate the portion of the purchase price that is going to be used for allocating to the capital assets.

Speaking of allocating most of the purchase price to all the capital assets that are being transferred to the acquiring company, we can consider this as a debatable approach on the seller’s part, as it might not be what the buyer has thought for. An individual who came up with the thought of “how to sell my business” can have the thought of allocating the purchase price as his profit is being taxed as capital gains as well. But this doesn’t always agree with the buyer.

 To know more, or get your selling purposes fulfilled, Call Rocky Mountain Business Advisors now at (303) 474-5582, and allow us to sell your business.  

View source: https://rockymountainn.wordpress.com/2020/07/07/tax-aspects-if-you-want-to-sell-your-business/