What is the importance of Intangible Assets when selling a Business?
All businesses have two classes of assets. They are either tangible or intangible. A tangible asset is a physical property or something that can be physically touched. Examples include a piece of land or a building. Other examples include a photocopier, desk, and chair. These are collectively referred to as Fixtures, Furniture, and Equipment. Intangible assets cover a range of items and include goodwill, covenants not to compete, trademarks and trade names, licenses and permits, and more. So, a good question at this point is “Why do I want to know this and why do I care?”
The answer to the above question depends on whether you are a buyer or seller of a business. However, there are tax implications that you need to be aware of. This is especially true if you are the seller. It will impact the amount of money you receive upon closing the business sale. It will also affect the buyer when they sell. Additionally, during the buyer’s ownership of the business, it will impact the depreciation they can take as a tax deduction.
Tax consequences when selling a business
The primary objective of this article is to inform buyers and sellers that there are tax implications associated with buying or selling a business. If you own a business and are considering selling, talk to your tax professional. Ask questions to ensure you understand what taxes you’ll need to account for when the business closes escrow. Also, be aware of when they are due and payable.
If you are the buyer of the business, there are different tax implications associated with the various asset allocations or classes. For example, a Covenant Not To Compete paid to the seller is generally taxed at ordinary income. For the buyer, they can write off this part of the purchase price for tax purposes, typically over 15 years.
Too much information?
You bet. Can there be complications? You bet. Is it important? If you own a business and want to know approximately how much you’ll get to put in your pocket if you sell your business, you should know. You do not want to waste a lot of time, unnecessary stress, and money. Also, you might walk away from an incredible offer from a buyer. This could happen because you don’t receive as much of the purchase price as you initially thought. I think you’d like to know.
If you are looking for expert advice on paying less tax when selling a business, Ed Cotney is here to assist you.
Legal aspects to consider
Additionally, in many cases, you may need to spend time ensuring that some of the business’s assets are in order. This is true from both a tax and a legal perspective. For example, you may own patents, trademarks, trade secrets, copyrights, architectural designs, recipes, and engineering designs, among other intellectual property. If the proper legal protection is not in place and you disclose these things to a buyer who understands they are not legally protected, you may have given it all away.
The above intangible assets often require special legal protection. This legal protection is best in place by consulting with a qualified attorney who specializes in intellectual property. For example, a patent is a property right granted by the United States Patent and Trademark Office. It should be recorded in your company’s books. Ensuring these assets are legally protected is simply good business. It does require time, understanding what needs to be done, and hiring the right help to ensure everything is in order.
Are you thinking about selling your business? Would you like to know the value of your business? For more information, please visit my website, Business Valuation.
For more immediate help, you are welcome to send an email to Andrew Rogerson or give me a call at (Toll-Free): (844) 414-9700