The Strategic Advantage of Selling a Business During an Election Year
Selling a business during an election year can offer several strategic advantages:
Economic Policies and Market Confidence
Election years often bring discussions about economic policies, tax reforms, and regulatory changes. If leading candidates propose business-friendly policies, market confidence can rise, potentially increasing business values.
Buyer Urgency
Potential buyers may act quickly to finalize deals before any potential policy changes occur. This urgency can lead to more competitive offers and faster transactions.
Valuation and Financing Conditions
Election years can sometimes stabilize interest rates and financing conditions, making it easier for buyers to secure funding. Stable or favorable financial conditions can increase the number of potential buyers and the prices they are willing to pay.
Increased Business Activity
Some industries, such as media, advertising, and political consulting, see a surge in activity during election years. Businesses in these sectors might find their valuations peaking during this time.
Investor Sentiment
Positive investor sentiment during an election year, particularly if the election outcome is expected to favor economic growth, can result in higher valuations for businesses. Investors may be willing to pay a premium, anticipating a favorable business environment.
Tax Considerations
Sellers might anticipate changes in tax laws based on the election's outcome. Selling before potential increases in capital gains taxes or other tax burdens can be a strategic move.
Strategic Planning
Business owners may use the predictability of election cycles to plan their exit strategies, aligning their sales with favorable market conditions that often accompany these periods.
Examples of Possible Tax Changes That Can Affect Sellers:
Capital Gains Tax Increases
Current Law: If the current tax regime has relatively low capital gains tax rates, sellers might rush to sell their businesses before a new administration potentially raises these rates.Example: If capital gains tax is expected to increase from 20% to 28%, a seller with a $10 million gain might save $800,000 by selling before the increase.
Corporate Tax Rate Changes
Current Law: Lower corporate tax rates can make businesses more profitable and attractive to buyers.Example: If the corporate tax rate is projected to increase from 21% to 28%, the potential profitability of the business could decrease, prompting sellers to sell before the increase.
Changes in Deductions and Credits
Current Law: Some deductions and credits might be eliminated or reduced under new tax policies.Example: If a business enjoys significant tax deductions under current laws that are slated for removal, its future net income could be less attractive to buyers.
Estate and Gift Tax Changes
Current Law: Changes in estate and gift taxes can affect the strategic planning of business owners.Example: If the exemption for estate taxes is expected to decrease from $11.7 million to $5 million, business owners might expedite sales to utilize the higher exemption amount.
Changes to Pass-Through Income Taxation
Current Law: Pass-through entities (like S-corporations and partnerships) are taxed at individual income tax rates, which can change with new tax policies.Example: If individual tax rates for high-income earners are projected to rise, the effective tax rate on pass-through income could increase, making these businesses less attractive to buyers.
Tax Treatment of Intangible Assets
Current Law: Changes in the amortization of intangible assets such as goodwill can impact the value of a business.Example: If the amortization period for goodwill is extended, the tax benefits of purchasing a business might decrease, reducing the business’s attractiveness.
Potential Implementation of Wealth Taxes
Current Law: Introduction of new wealth taxes on high-net-worth individuals could influence the timing of business sales.Example: If a new wealth tax is introduced for assets over a certain threshold, business owners might sell to diversify their assets or minimize their tax liability.
Conclusion
Selling a business during an election year offers several strategic advantages, including potential increases in business value, buyer urgency, stable financing conditions, and favorable investor sentiment. By anticipating tax changes and strategically planning the timing of their sales, business owners can maximize their exit outcomes.
About Dr. Allen Nazeri
Dr. Allen Nazeri, also known as "Dr. Allen," has over 30 years of global experience as a healthcare entrepreneur. He is the Managing Director at American Healthcare Capital and Managing Partner at PRIME Exits. Dr. Allen provides strategic growth consulting to leadership teams of both privately held and publicly listed companies, ensuring their preparedness for successful exits.
He holds a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire. Dr. Allen is the author of "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" He offers a free valuation to business owners ready for a partial or complete exit strategy. Dr. Allen collaborates with strategic buyers, private equity firms, and institutional investors, taking direct accountability for the annual successful sell-side representation of nearly $750M in enterprise value.
To discuss your company confidentially and receive a free valuation, email Allen@ahcteam.com or Allen@pexits.com.
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