A lot of contractors are taking advantage of the land rush for contracting businesses by private equity and selling. For most, selling their companies is a one-off. It is something never before experienced and maybe, something unlikely to be experienced again. Since it is a new experience, contractors do not know what to expect. Here are six possible surprises.
1. You Pay More Taxes Than You Imagine
No one should be surprised that taxes accompany the sale of their business. What can catch people off-guard is the amount of the taxes, the sheer magnitude of the
number. Depending upon the timing of the sale, Tax Day may catch you unprepared and illiquid if the proceeds of the sale have been put to use in long term investments. If you have to sell stock or land, you may also be creating recognizable short-term gains for the following year, which are taxed at a much higher rate than long-term gains.
2. You Lose Your Business Tax Shield
Small business owners often use the tax laws to their legal advantage to minimize taxes and expenses. For example, you can hold an annual Board of Directors
3. You Lose Control
As a business owner, you are used to calling the shots. There is no one to tell you what you are “allowed” to do, or what you cannot do. Once you sell, your business is no longer your business. It belongs to someone else. They make the rules, not you. While this seems apparent, experiencing it is a slap in the face for most contractors. You no longer have control
4. You Get a Boss
The longer you are self-employed, the more unemployable you become. Yet, if you sell your business and stay around, you will become an employee. You will have a boss. You will need to please your boss. You will need to report to, and be
accountable to your boss. While you know this will happen before you sell, actually experiencing it is something else.
5. You Lose Freedom
As a business owner, you can take time off whenever you want. If you build a business that can operate without your continual presence, you enjoy a degree of freedom most people cannot imagine. As an employee, your personal time off is limited and permission must be granted in advance.
6. You Lose Your Identity
Before you sell, your identity is wrapped up in your business. This will continue if you stay on, but will eventually disappear. You will no longer have a role as a contractor or as a business owner. When someone asks you what you do, you will struggle to answer. You know what you used to do, but that no longer applies.
Nevertheless, You Gain a Lot
Despite it all, many business owners still sell. Why? It is nice to get money-whipped. Whenever you feel frustration of a sense of loss you can pull up your portfolio, count the digits, and revel in the fact that you did it. You lived the American dream. All in all, life will be pretty darn good.
Need help building a salable business? You need the Service Roundtable, which has helped thousands of contractors become more prosperous. Learn more at www.ServiceRoundtable.com or call 877.262.3341.