It is never too early to start planning an eventual exit strategy. There are many factors to consider when timing your exit, unfortunately, some like tax rates are out of your control.

Are you prepared to give Uncle Sam 25% – 28% of the hard earned equity in your company when you sell or recapitalize? Can you imagine capital gains taxes up to 40%?

Senator Obama has called for an increase in the capital gains rate. It is currently at 15%, and he would like to see an increase to 25% or even 28%. This means that a company selling in 2009, after an increase in the tax rate, will have to increase its value by at least 10% - 15% just to net the same amount of post tax proceeds following a transfer in ownership. Even scarier for business owners, there are many Democrats, such as former White House contender John Edwards, who want capital gains to be taxed the same as income. This would push rates for capital gains taxes up to 40%. They have not been that high since 1978.

So, why does the Senator want this increase in capital gains taxes? They say it is to increase federal revenues, but when the tax was raised in 1986, from 20% to 28%, tax receipts went down, not up. On the contrary, when a reduction in the tax was passed, receipts increased dramatically. They soared again in 2003 when President Bush further reduced them to the current rate of 15%. Capital gains tax receipts actually doubled over the last four years. This shows that in times of high tax rates, Americans simply stop realizing gains because they hold onto their capital assets. The majority of people try not to liquidate until tax rates are again reduced. However, nobody knows when that will happen, and unfortunately, not all entrepreneurs will have the patience or the luxury of waiting out that cycle.

It may be time to consider or reconsider your exit strategy options. Even if an eventual exit from your business appears five to seven years away, a recapitalization with a Private Equity Group may provide an option to cash in a significant portion of your company’s equity while tax rates are still low. This strategy also allows you to maintain a source of income and a significant equity interest in a company that now has much deeper pockets and partners to assist in your growth.

It is never too early to start planning an eventual exit strategy. There are many factors to consider when timing your exit, unfortunately, some like tax rates are out of your control. Let S&P Capital assist you in the planning process by discussing and analyzing the market value of your company. We will look at where you are now and where you are headed in the future. There is no cost or obligation to you other than some well-spent time. We’ll then provide continued counsel to you until the day you are prepared to engage us to confidentially market your company for sale or recapitalization, negotiate a deal on your behalf and assist you in going to closing. Let us help you put your hard-earned equity in your pockets instead of Uncle Sam’s.