Financial Guidance: Before You Sell, Gift, or Transfer Your Business, Know the Tax Bill

By John McAlister

Business owners spend years, sometimes decades, building value in their companies. They reinvest profits, take risks, hire people, build customer relationships, and work through plenty of good years and difficult ones along the way.

Eventually, most owners begin thinking about what comes next – their EXIT

Every owner is going to EXIT at some point – whether it is during life or at death. Whatever you decide to do, you better know what you or your family will get to keep after Taxes! It sounds simple, but we have seen plenty of owners focus on the value of their business or the size of an offer without having a clear picture of what the transaction will actually mean for them and their family.

A $25 Million Sale Is Not $25 Million in Your Pocket

When an owner gets an offer for the business, it is natural to focus on the purchase price. If someone qualified tells you the company you spent your career building is worth $25 million or more, that number gets your attention.

How much you actually walk away with depends on how the transaction is structured. Your cost basis, the type of entity you own, whether the buyer is purchasing stock or assets, the state you live in, real estate, installment payments, earnouts, and other pieces of the deal can all affect the final tax bill.

That is why two offers for the same business can look similar and still leave the owner with very different amounts at the end of the day. Before you agree to a number, you should understand what that number means after taxes.

Knowing that ahead of time also gives you perspective: Instead of getting caught up in the offer, you can evaluate it based on what you actually need and what you are trying to accomplish.

What If You Want to Keep the Business in the Family?

For many family business owners, the business IS the family LEGACY.

They want to pass the business to their children or grandchildren. They want the name to stay on the door, the employees taken care of, and the next generation to have an opportunity to continue what they started.

This may absolutely be the right decision, but it still requires planning. And your biggest factor is timing because if your company is worth $25 million today, it could be worth over $60 million in less than 10 years. Waiting until your legacy asset reaches that higher value before beginning the transfer conversation can change the tax picture and potentially limit some critical planning strategies that were available earlier. These strategies can include gifting, freezing the value, and gradual ownership transfers using Trusts. This perspective can help you understand that taxes should become part of your overall planning. We demonstrate to owners all the time that the lowest tax bill is not automatically the best outcome.

You may prefer to sell and completely step away. Another owner may want to take some money off the table and reduce his financial risk but continue running the company. Someone else may care more about keeping the business in the family than maximizing the sale price.

The tax strategy needs to support what you want your life, family, and business to look like afterward.

For example, gifting a large portion of the company may look attractive from an estate planning standpoint, but what happens if you still need income from the business to support your lifestyle? If you have multiple children and only one is employed in the company, how do you treat everyone fairly? These questions matter just as much as the tax rate.

Know the Numbers While You Still Have Choices

Why not compare a sale today with a sale five years from now? You might look at gifting a portion of the company, selling to management, transferring ownership gradually, or bringing in an outside investor while retaining some ownership. We have seen owners go through this exercise and realize that the path they assumed was best was not necessarily the one that worked best for their family. That is exactly why you want to have these conversations early.

At The Beringer Group, we help business owners understand the financial side of these decisions before they have to make them. We work alongside your CPA, attorney, estate planning professionals, and explore what different paths could mean for you and your family.

If you are thinking about selling, gifting shares to family, or simply wondering what a future transition could look like, you do not need to have all the answers today, but you should know the numbers.

A conversation now can give you a much clearer picture of what you are working toward and, just as importantly, what you and your family could actually keep.