I’ve written about this before; about how it can be ill-advised to worry about politics too much if it comes at the expense of taking focus away from your business. You’re better off concentrating on factors that you can control. The things that matter most in your business are very much in your power.
Such as training and retaining your best employees. Taking care of your customers and providing the best customer experience you can. Making it easy to do business with your company and find information about your services online. Make sure your operations are as efficient and cost-effective as possible.
Putting your company in its best financial position to weather changes in the economy, changes in demand, and changes in the competitive market. Helping your staff stay focused on what matters to your customers.
However, if you plan to sell your company within the next few years, the party in charge after the November 5th election can influence some important factors in your future sale. Income tax rates, for example – most asset sales come through as straight earnings for the seller. Another critical financial factor is the capital gains rate.
The Wall Street Journal reports that the Harris campaign is proposing tax increases for high earners; top marginal tax rates would reach their highest point since 1986. “The wealthiest investors and company founders would encounter sizable capital-gains tax bills that they don’t face under current law.”
The WSJ article says that “under [the Harris] plan, the top marginal income-tax rate for individuals would climb to 44.6% across almost all income types, compared with today’s lower top rates (23.8% on capital gains, 29.6% on some business income and over 39% on wages). Corporations would face a 28% tax rate, up from 21% today, and large companies would pay a 21% minimum tax instead of the current 15%.”
The changes are more likely to occur because, according to the WSJ, “Major pieces of the 2017 tax law expire at the end of next year absent congressional action, an outcome that lawmakers in both parties want to prevent. The expiration could give Harris leverage to demand support for some of her tax priorities. If the president and Congress do nothing, about 62% of households will see their taxes go up in 2026, according to the Tax Foundation.”
There’s no doubt that if these policies are implemented, investors, owners, and sellers will be making different – and differently-timed – financial decisions. We may see a flood of companies for sale by owners who want to avoid paying significantly higher income and capital gains taxes. Investment may slow down as PE firms and other buyers look at alternative strategies for their capital.
Owners may change their minds about selling altogether or be more willing to hold notes and defer income if they do sell. The landscape may change dramatically based on the November results. If more companies go on the market at the end of this year, it will affect how competitive your HVAC company might be and the size of the pool of qualified buyers.
If you’ve been thinking about selling your business, your accountant, financial advisor, and estate planner can help you understand how future tax rates will affect your profit from the sale.
If I can help you understand the value of your business in the current market, I do offer a complimentary and confidential opinion of value.