Business Valuations Enhanced in Florida
The main driver of business valuations is the future cash flow the buyer may reasonably expect to derive from the business after the sale. If the future cash flow from the business is heavily taxed, threatened by regulation, or resides in an unfavorable demographic environment then business valuations ultimately suffer. On average, Florida-based businesses have significantly higher average valuations than the national average. Many overseas ‘E-2 Visa’ buyers and out of state buyers wisely choose Florida as their destination when purchasing a business because of its favorable business climate.
Favorable Business Climate in Florida
Business owners prefer a stable business environment with low taxes and non-burdensome regulations. Federal taxes and regulations apply to business owners throughout the country, but states also tax and regulate businesses. A favorable state business climate with less taxes and regulations means higher future cash flow from businesses within that state. This translates into higher cash flows from businesses in less taxed and less regulated states. Three advantages of buying a business in Florida are there being no state income tax, less employment taxes, and a growing population with favorable demographic characteristics.
Advantage #1: No State Income Tax
Florida business owners who do business as a sole proprietorship, Limited Liability Company (LLC), or S-Corporation do not pay state income taxes. Individual tax payers also pay no state income tax in Florida. This tax savings greatly enhances the future cash flow of a business in Florida compared to other states. In New York, for example, a business owner with $250K of taxable income will pay about $15K in state income taxes. A California business owner with $250K of taxable income will pay about $20K in state income taxes. The state income tax rates go up further as the income tax brackets rise.
Advantage #2: Lower Corporate Taxes
Business owners in Florida who file taxes as a C-Corporation are subject to a 5.5% maximum Florida state corporate tax. It should be noted that the first $50K of taxable income is exempt from the Florida state corporate tax, and other deductions may apply. The Florida state corporate tax is still lower than the national average of 6.8%, and compares favorable with the state corporate tax rates of 7.3% in New York and 8.8% in California. Prior to setting up a C-corporation, a Florida business owner be aware that they would be subject to the Florida state corporate tax. It is recommended that they speak to their accountant before doing so.
Florida Employment Taxes and Regulations
- Unemployment insurance is a joint federal-state social plan that pays for the recently unemployed.
- Business owners in Florida pay a 2.7% Unemployment insurance (UI) tax on the first $7,000 of an employee’s wages (and none thereafter).
- This compares favorably well with other states such as Illinois.
- In the Land of Lincoln the state’s UI tax is about 4% for the first $13,000 or so of an employee’s wages.
- For many companies in construction-related or service-related industries which use a large pool of employees, the UI tax accounts for a significant part of their overall net profit.
- For example, suppose a small restaurant hires twenty different employees within a year, and paid them each at least $10,000.
- The standard state UI tax for the restaurant in Illinois is about $8,000, whereas state UI tax for the same restaurant in Florida is $3,780.
- The resulting difference of tax savings (over $4,000) means a lot to many small business owners, as well as to the valuation of their business.
- Other favorable aspects (from the employer’s perspective) of Florida employment regulations is the low Florida worker’s compensation rate (slightly below the national average) and the fact that Florida is an “at-will” employment state.
- An “at-will” employment state means that an employer (or employee) may terminate an employment relationship at any time and for any reason unless doing so violates discrimination laws or a signed contract between the parties.
Advantage #3: Florida Growing
Florida is a very populous state with over 22 million residents. This compares with less than 5 million residents in 1960, and the population keeps growing every year. The South Florida area has two major airports in Palm Beach and Miami, several ports, and is only a couple hours away from another large regional population base in Orlando. The close proximity to Latin America and the Caribbean also are a benefit for exporters in Florida. The population of Palm Beach County has gone up by nearly 40% in just a generation (population currently over 1.5M people whereas in 2000 it was 1.1M). Further, the median income of Palm Beach County residents is in the top 25% of the national average. A burgeoning population with higher than average income levels is a major advantage for business owners in Florida.
Many overseas and out of state buyers choose to purchase a business in Florida. Although the sunny weather, great beaches, and tourist attractions are great reasons to move here, the financial and regulatory advantages of buying a business lead to increased business valuations. The lack of a state income tax, favorable employment taxes and regulations, and a growing and prosperous population base are all key advantages of buying a business in Florida.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.