The Taxman Doesn’t Always Win, and That’s Not Always Good

“I just wrote the biggest check I’ve ever written. I don’t ever want to do that again. I guess I’ll die and let my family deal with it.”

Nobody likes paying taxes, especially Allen (not his real name). Though in his mid-70s and dealing with health issues, Allen isn’t ready to sell his company. He met with me, reluctantly, at the request of his son-in-law who I know from church. Allen’s family wanted him to consider selling his business, and I suppose they thought I could convince him to do so.

I will never try to talk a business owner into selling. That’s like telling someone who they should marry. The decision to sell is so personal to the one who has to make it, undue outside influence will likely be counterproductive.

So over lunch at a local diner, I just answered Allen’s questions about the process of selling a business, how businesses like his were valued, and what would be required of him after the sale. When I told him the range of value he’d likely see if he decided to sell, he found the excuse he was looking for. “If I sold for that much, I’d send a third of it to Uncle Sam. No way am I doing that.” Allen went on to tell me he had just written a big check for his 2018 taxes; he wasn’t in the mood to think about doing it again.

Allen’s son-in-law gingerly pointed out that having a big tax bill when you sell usually implies you’ve sold the company for a lot of money. Though obvious, that concept didn’t seem to register with Allen. The potential size of his tax bill was all he seemed to care about.

We left lunch without a decision about selling. Well, to be more specific, we left lunch without Allen acknowledging that selling was even on his radar screen. But here’s the sad part, Allen told me he doesn’t enjoy day-to-day management anymore, and he even described how his health struggles were affecting his productivity. So here you have a business that is sellable for a nice amount, an aging owner who seems to have reasons to sell, but he won’t entertain the idea past a casual conversation over lunch.

What’s up with that?

Allen isn’t ready to sell and he is using taxes as his excuse. I’m no psychologist, but I’ve seen this mindset before. An owner’s identity is so wrapped up in their business, they can’t see life without it. They’d rather be carried out horizontally than walk out voluntarily. It’s sad for the family and employees when an owner decides that holding on is preferable to an orderly transition. But hey, it is a viable way to avoid paying taxes, because by the time the business is sold, it will likely be worth less. Nobody wins, not even the taxman.

 

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 .  He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The story above is true, but the names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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