Guest Interview
Michael Antongiovanni, Principal Consultant, Just Effective Management Solutions, LLC
When is the best time to sell my business?
We hear that question every week at the LaManna Consulting Group.
Under ordinary circumstances, the best time to sell is when you are financially and emotionally ready. But 2021 isn’t an ordinary year. Although economic activity has picked up since the COVID havoc of 2020, plenty of uncertainty remains.
Now, business owners wonder whether proposed changes in federal tax laws should hasten their decision about when to sell their business. Some of the changes the Biden Administration has proposed to capital gains taxes and estate taxes could have a major impact on how much money an owner would get from the sale of the business.
We asked Michael Antongiovanni, a financial and tax advisor with M&A experience for his thoughts on the topic.
Q. Would 2021 be a good year for a company to sell its business?
MA: In general I would agree that 2021 is a good year to sell a company, for many reasons. The key to selling a company is finding a suitable buyer. While low interest rates and capital are available, most buyers are focused on risk, potential growth, strategic fit, and overall quality of the organization they are looking to acquire.
Q. If the proposed increases in tax rates of capital gains are passed and take effect in 2022, how would that affect the proceeds the seller receives from the sale?
MA: Generally speaking, an increase in the capital gains rate will reduce the after-tax proceeds that a business owner will receive from selling his/her company. However, the details matter and any business owner considering a sale should consult with a tax advisor to understand the potential impact to the business owner.
Business owners should also keep in mind that legislation has only been proposed, so the details of any change in the tax code have not been finalized.
Q. How would reductions in estate tax exemption levels affect a seller’s decision of when to sell a business? (e.g. estates of $3.5 million for individuals and $7 million for married couples would be taxed at 40%)
MA: First, all business owners should have an estate plan. If your estate is large enough that it will trigger taxation, then this should be incorporated into the estate plan. If the business is sold prior to the owner’s death, there should be cash or other liquid assets that can be used by the estate to pay taxes.
The challenge for many family businesses is that the death of an owner could trigger estate taxes that the heirs do not have the ability to pay without selling the company. These situations can cause the company to be sold or liquidated under duress. Companies frequently use life insurance and other strategies to deal with this risk, but an estate plan is something every business owner should have.
Owners should also consult their legal and tax advisors to discuss the specifics of any legislation.
Q. What role does estate planning play when a business owner decides to sell? Does it primarily affect family-owned businesses?
MA: We should differentiate between an estate plan and a life plan. Many business owners have plans of retiring. If the business owner retires, the business will need to be shut down, sold or handed off to someone to manage the day-to-day activities of the business for the retired business owner. Business owners should define and plan their exit strategy.
The estate plan considers what to do if the business is sold and what to do in the event the business owner dies or becomes unable to run the business. While this affects family-owned businesses, it can also have an impact on partnerships and other closely held companies.
Q. Do you believe the proposed changes in capital gains taxes and estate taxes will actually get passed and signed into law in 2021?
MA: Predicting events in Washington DC is difficult. I believe an increase in marginal rates for wealthy individuals and corporations will get passed in 2021. I think there is a good chance that there will be some kind of agreement between the House and Senate regarding capital gains and estate taxes.
If the last couple of months has taught us anything about the dynamics in Washington it is that the Senate will create the opportunity for compromise.
Q. What advice would you give business owners who might not be prepared to sell in 2021? Should they think beyond the 2024 election when different tax laws might be introduced?
MA: Business owners should develop a plan for the future by having an exit strategy and goal in mind. I would also advise business owners to focus more on creating a strong organization that will attract buyers and not focus on trying to time the M&A market.
Well-run, profitable companies with solid customer relationships and good employees will find buyers. In regards to the 2024 election, business owners should keep in mind that if there is a change in 2024, the new President won’t take office until 2025 and their legislative agenda may not take effect until 2026.
Q. If business owners want to try selling their business in 2021, who should they call first and how quickly should they act?
MA: If the business owner has already developed an exit plan and is looking at starting the exit process sooner, he should reach out to his team of experienced advisors. This team should include an M&A advisor and a tax professional or a legal advisor with experience in mergers and acquisitions.
Every business owner’s situation is different and the business owner should discuss accelerating the strategy and timeline with their advisor.
If the business owner does not have an exit strategy in place, things may be more complex. In this case, the business owner should reach out to an expert to develop an exit strategy and understand any risks or challenges with marketing the business to a potential buyer as is.
Unplanned exits happen and they need to be properly executed or potential buyers will think the owner is selling under some kind of stress (financial, health issues, family/legal, etc.) This will potentially reduce the value a business owner may realize.
Michael Antongiovanni is known for his data-driven approach to creating business opportunities. He has 25 years of success across many industries including printing, food processing, logistics, and high and low volume manufacturing.
In 2014, Michael Antongiovanni started Just Effective Management Solutions to help middle market companies achieve greater success.
With his extensive background implementing significant cost savings, he is a valuable asset for companies working on process improvement or turnarounds. His broad areas of expertise include corporate finance, operations, Lean Six Sigma, supply chain, change management, IT, international business, and strategic planning.
Michael holds an MBA from the Illinois Institute of Technology, and a Bachelor’s degree in Accounting from Augustana College. He is also a CPA and a trained Lean Sigma Blackbelt.
Contact him via email at: michael.antongiovanni@jemsconsultants.com or call him at 630-639-8575. Visit the website jemsconsultants.com for more information.
Are ready to start the process of selling your business?
Call me at 561-543-2323 and let’s talk. The LaManna Consulting Group will create a custom roadmap of options and exit strategies for your business. We can also recommend trusted, experienced M&A tax and legal advisors to help during the process.