Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m back with Martin Euson, one of our tax directors on our Transaction Advisory Services team; Martin, welcome back to the Playbook.
Martin: Thank you Jen, a pleasure to be here.
Jen: So last time we had you here we were talking about buying a company. A lot of our clients are looking to sell their company, what are some of the key considerations they need to be thinking about when they’re selling their company?
Martin: Jen, when I’m advising a client on selling a company there’s really three main considerations that I try to make a point to them. First and foremost I think it’s important for sellers to understand the overall tax burden, or tax cost, that that’s going to result from selling their business; in other words, how much tax are they going to have to pay?
When thinking about that we think about things like whether the transaction itself is going to be taxable or whether it’s going to be a so-called tax free reorganization. We also think about the different types of taxes that are going to apply; there are federal income taxes, state and local income taxes, transfer taxes. It’s also important to note whether the transaction is going to be subject to a single level of tax or a double level of tax.
Jen: Well they need to get you involved there. What else do you ask them to consider?
Martin: Other considerations would be what we call the character of the gain or loss that’s going to result on the transaction. And when I say character I’m not referring to whether the gain or loss has good character or bad character, we’re talking about whether the gain or loss is treated as ordinary income or treated as capital gain for tax purposes.
Jen: You mentioned three, so what’s the third thing?
Martin: Thirdly I would say it’s very important for sellers to understand the tax attribute profile of the company that they’re selling and what I mean by that is understanding the basis in the assets or the basis in the stock, and also understanding whether they have any loss carryovers or credit carryovers that could be used to offset the gain.
Jen: Sounds great. I think they definitely need to get you involved. Now on the buy side we talked about timing, what’s the right sweet spot for timing to get you involved on the sell side?
Martin: Timing for nay transaction Jen is always before the transaction occurs. I would say when they first begin thinking about a transaction is the time you want to contact us.
Jen: Martin that was great information and we’ll get you back to talk about it some more.
Martin: Thanks Jen, I look forward to it.
Jen: Perfect. To learn more about how we can assist you with your potential transactions visit PKFTexas.com/transactionadvisoryservices. This has been another Thought Leader production brought to you by the PKF Texas Entrepreneur’s Playbook.