Ideas for When Selling or Winding Up Your Business…
A stressful time for all.
Small business owners are usually very good at what they do, often multitasking and juggling many tasks and working long hard hours. The way they feel about selling or winding up their business will most likely be tied to their motivation for doing so. Both the Selling or the Winding Up of a Business will be an incredibly stressful, time-consuming process fraught with dozens of moving parts and truckloads of paperwork details, compliance issues and regulations that you can’t afford to overlook or get wrong!
Rather than getting advice from their chartered accountant, many business owners will often wait until the last minute to make hard decisions about selling or winding up the business.
Destressing – a few tips
A clear plan takes time to develop, but assures that a business owner can maximise full value from their business. As an entrepreneur, it’s not easy to think about selling or closing the business. But knowing when the time is right and planning ahead of time will improve their chances of getting the maximum return and conditions.
In a perfect world, you’d have your exit strategy planned 10 years in advance. Unfortunately, most business owners don’t, and most don’t know when to start creating one!
So, your decision made, your goal as a business owner is to maximise your return and keep costs to a minimum.
Here’s What to Look out for:
- Take care with Tax when winding up your Business – If you’re considering selling your business and you run it through a company, you could have a tax problem!
- You may not take out, straight away, large amounts of your capital gain on sale of the business. If you do, you might find you get an unwanted tax bill.
- Generally, when a company makes a capital profit, the shareholders may only distribute this money to themselves if it is in the process of winding up the company. If they pay out before the company is officially in liquidation, they have to pay tax on the capital gain.
- If there’s no evidence to the contrary, the money taken out could be interpreted as a loan from the company to the shareholders, in which case Fringe Benefit Tax would apply, or you would have to pay interest to the company on the amount of its loan to you.
From your point of view, the interest is not tax deductible and it is subject to tax in the company – “a waste of money“!
Consult your accountant – as soon as possible
Your solution is to wind the company up promptly. You should consult us to make sure this is done properly and enable us to check for tax pitfalls.
Get it right & save money when winding up your business
- If you are winding up your business and you’re on a payment’s basis, save GST by paying as many bills as possible before you deregister.
- If you are an ordinary company and incur expenses in the year after giving up business, you’re not going to be able to claim them because there will be no income. You will have an unusable loss.
- Have as few bills as possible in the year after ceasing business.
- ACC and accounting costs come to mind. You might be able to adjust your provisional payment to ACC for the following year. To be a valid income tax claim, it would have to have been invoiced and be payable before balance date.
- For accounting costs, get your financial statements completed, invoiced and paid before balance date. A signed agreement (before balance date) agreeing the amount of the accounting costs would also work if the accounts are completed after balance date.
- If you’re winding up about the time of balance date, you could save accounting fees by not continuing in business beyond the end of the financial year.
- On the other hand, if your income has been taxed at the top rate and your future income is going to be attracting a lower rate of tax, you could be better to sell (or cease business) part way through a year.
- The income for the part-year could be taxed at a much lower rate than would have been the case if it’d been part of a full year’s income.
Assistance on destressing
For more advice and suggestions on selling or winding up your business, give us a call or drop me a line. We are well-versed in business sales, business acquisitions and business closures. In order to maximise your Investment or Return and keep costs to a minimum you’ll want an experienced professional in your corner.
For a ‘No risk trial, No-cost, No-obligation Initial Consultation’, contact us today