Selling Your Business, Taxes & Tax Structures

March 20, 2025 By

It is never too early to start thinking about what tax structure you should use when it comes time to sell your business.  A simple, but undeniable, rule of life is that taxes matter and they can’t be overlooked.  Author Tim Fries at The Tokenist has written an excellent and quite detailed overview article on what tax issues business owners need to consider before selling their business.  His article, “What Tax Structure Should You Use When Selling Your Business?” explores many aspects of a topic that many business owners fail to invest enough time in, namely taxes.

As Fries astutely points out, the taxes involving the sale of a business can be complex and are usually unknown to those selling a business for the first time.  Your tax structure can influence how much money you receive at the closing of your deal, so it’s a very good idea to pay attention to all aspects of taxation and your business.  It is key to remember, “When you are selling your business – as far as taxes are concerned – you’re ultimately selling a collection of assets.”

Fries points out that taxes and selling a business are no small matter.  It is possible that up to 50% of the sale of a business can go to taxes. Don’t worry if you are learning this for the first time and feel more than a little shocked.  However, this fact does a good job of illuminating the importance of setting up the right tax structure for your business.  While you might not be able to get around taxes altogether by investing the time and effort to set up the right structure for your business, you can keep from paying more taxes than is necessary.

There are a lot of variables that go into how much you will ultimately have to pay in taxes.  Let’s take a look at some of the key questions Fries raises in his article.

  1. Is your sale considered ordinary income or is the sale considered capital gains?
  2. Are you operating as an LLC, a sole proprietorship, a partnership or are you operating as a corporation?
  3. What portion of the sale price goes to tangible assets as compared to intangible assets?
  4. Is there a difference between your tax basis and the proceeds from your sale?
  5. What does your depreciation look like?
  6. Don’t expect that the buyer will instantly agree to your terms.
  7. Realize that the decisions you make during negotiations with a buyer will have tax implications.
  8. Is an installment sale right for your business?
  9. With C corporations, sellers usually want a stock sale whereas buyers generally prefer an asset sale.
  10. Cashing out immediately, where you receive all your funds at once, will increase your tax liability.
  11. Have you considered switching to an S corporation?
  12. Have you consulted with experts to decide which tax structure is best for you?
  13. Have you consulted with a business broker?

Selling a business is obviously complicated.  Finding a seasoned business broker can help you demystify many aspects of buying and selling a business.  Ultimately, having the best deal structure and finding the right buyer can be a labyrinthian process.  Having the very best professional help in your corner is simply a must.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles, Seller FAQ, Selling a Business

How to Connect During a Crisis

March 20, 2025 By

Small business owners are facing new challenges during this crisis.  Communicating with customers requires more focus and depth than ever before.  In Mat Zuker’s latest article for Forbes Magazine, he cites Jay Mandel who runs The Collective NYC, a marketing consulting team focusing on a customer’s experience, who underlines the importance of businesses to understand their mission statement and values in order to re-enforce marketing strategies. 

Information is Crucial.  Each customer purveying your business’s website needs to understand your hours of operation, any limitations to service and what is being done to ensure cleanliness.  Providing this information establishes to your customer your seriousness of precautions which will be appreciated during this time.

If your financial situation allows, focus on your employees, donate to charities or offer discounted or free products.  By marketing this information, your brand’s scope will bolster with the customer as well. 

Utilizing the Customer’s Time.  Most customers are adhering to social distancing guidelines put forth by their state and the federal government.  Now, more than ever, it is important to exhibit to your customers how your brand can be utilized beyond your brick and mortar.  Zuker cites how universities are beginning to offer free online classes and telecommunication companies are offering two months of free service to low-income families; King Arthur flour is promoting its library of comfort food recipes (yes, please!).  Thinking beyond your storefront to put your service or product into your customer’s virtual hands is important.

Remember to entertain.  By each passing day, customers are looking for new stimulation to help the time go by at home.  Movie companies are making the best of the situation by sending theatrical releases to online streaming services.  We don’t think it is necessary to always make your customers laugh, but it might be within your branding to aim for content geared towards warmth, humanity and empathy. 

The metric for engaging your customers is changing; moving beyond views and shares to quality feedback or social impact on your community.  Do not bite off more than you can chew.  Cited in Zuker’s article, Social Media Today warns of virtue signaling; meaning declaring a set of values, but not following through on the actual deeds. 

Also, this is a fantastic opportunity to consider your marketing strategies for when this crisis ends.  What will your business look like once you are able to open the doors?  How are you able to stay relevant with your competitors?  These are all questions needing answers, but today we must do our best to accomplish what is in front of us. 

Read Mat Zucker’s full article here: https://www.forbes.com/sites/matzucker/2020/04/01/content-in-a-crisiswhat-brands-can-deliver/

Copyright: Business Brokerage Press, Inc.

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Filed Under: Blog, Buyer Articles, Seller Articles

Tackling Growth Delusions When Buying a Business

March 20, 2025 By

There is no doubt about it, it can be exciting to buy a new business.  However, in the process, it is very important that you don’t become unrealistic about future growth.  Keep in mind that in the vast majority of cases, if a business is poised to quickly grow substantially, the seller would be far less interested in selling. 

Richard Parker’s recent article for Forbes entitled “Don’t Be Delusional About Growth When Buying a Business” seeks to instill a smart degree of caution into prospective buyers.  Parker notes that when evaluating a business and talking to the owner, many buyers come away with a sense that enormous growth is just “sitting there” waiting to be seized.  In particular, Parker cautions those buyers who are buying into an industry that they know nothing about; those individuals should be very careful. 

When buying into an industry where one has no familiarity, there can be a range of problems.  The opportunities that you see may not have been tapped into by the existing owner for a range of reasons.  You couldn’t possibly guess what these reasons might be without more of a knowledge base.  Since you are an outsider, you likely lack the proper perspective and understanding.  In turn, this means you may see growth opportunities that may not exist, as the seller may have already tried and failed.  Summed up another way, until you actually own the business and are running it on a day to day basis, you simply can’t make a proper assessment of how best to grow that business.

The seductive lure of growth shouldn’t be the determining factor when you are looking for a business.  A far more important and ultimately reliable factor is stability.  The real question, the foundation of whether or not a business is a good purchase option, is whether or not the business will maintain its revenue and profit levels once you’ve signed on the dotted line and taken over.  You want to be sure that the business doesn’t have to grow to remain viable.

As Parker points out, the majority of small business buyers will buy in a sector where they don’t have much experience, and that is fine.  What is not fine is assuming that you can greatly grow the business.  Of course, if new buyers can achieve that goal, that is great and certainly icing on the cake.  But don’t depend on that growth.

In the end, everyone has some ideas that work and some that don’t.  You may take over a business and, thanks to having a different perspective than the previous owner, are able to find ways to make that business grow.  But realize that many of your ideas for growing the business may fail completely. 

A professional business broker will be able to help you determine what business is best for you.  A business broker will help keep you focused on what matters most and steer you clear of the mistakes that buyers frequently make when buying a business.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Buyer Articles, Buyer FAQ, Buying a Business

Understanding M&A Purchasing Agreements

March 20, 2025 By

M&A purchasing agreements can have a lot of moving parts.  A recent article from Meghan Daniels entitled, “The Makings of the M&A Purchase Agreement” serves to outline a range of facts including that every M&A deal is different.  The article, which serves as a general overview, raises a range of good points.

Components of the Deal

It should come as no surprise that M&A purchase agreements have various components.  Everything from definitions and executive provisions to representatives, warranties and schedules, indemnifications and interim and post-closing covenants are all covered in these purchase agreements.  Other key factors included in M&A purchase agreements are closing conditions and break-up fees.

Advice for Sellers

In her article, Daniels includes a range of tips for sellers.  She correctly points out that negotiating a purchase agreement (as well as the different stages involved in finalizing that agreement) can be both time consuming and stressful. 

As any good business broker will tell you, business owners have to be careful not to let their businesses suffer while they are going through the complex process of selling.  Selling a business is hard work, and this fact underscores the importance of working with a proven broker.

Likewise, Daniels observes that any serious buyer is likely to look quite closely at your business’s financials, which is yet another reason to work with key professionals during the process.  Additionally, you don’t want to wait until the last moment to get your “financial house in order.” 

You can be completely certain that prospective buyers will want to examine your finances closely before making an offer.  The sooner you begin working on getting your finances together, the better off you’ll be.

Use Trusted Pros

Another key point Daniels makes is that there will be tension, as every party is looking to protect their own best interests.  Having an experienced negotiator in your corner is a must.  Make sure your negotiator has bought and sold businesses in the past, and he or she will understand what pitfalls and potential problems may be lurking on the horizon.  Daniel’s view is that the sale price isn’t the only variable of importance.  Factors such as the terms of the deal must be taken into consideration.

The bottom line is that there are many reasons to work with a business broker.  A business broker understands the diverse complexities of an M&A purchase agreement.  They also have experience helping business owners organize their financial information and can prove invaluable during negotiations.  For most business owners, selling their business is the single most important business decision they will ever make.  Find someone who understands the process and can act as a guide through the process.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles, Seller FAQ, Selling a Business

Four Common Seller Mistakes

March 20, 2025 By

Sellers are just like everyone else in that they can make mistakes.  In this article, we’ll explore some of the most common mistakes that we see along with some of the repercussions. 

1. Not Seeing the Buyer’s Point of View

The first major mistake that sellers make is that they simply fail to look at the situation from the buyer’s perspective.  One of the smartest moves any seller can make is to step back and ask themselves two key questions. 

 “What information would I expect to see if I was thinking about buying this business? 

“Would I trust the information being presented to me if I was the buyer?” 

While there are many other questions sellers can ask to help reframe their thinking, these two simple questions can orient a seller’s thinking towards a buyer’s perspective.  Additionally, investing the time to understand the buyer’s position can help avoid a range of problems and help smooth out the negotiation process.

2. Neglecting the Business During the Sales Process

Another seller mistake we see is that the seller neglects the business during the sales process.  This can have significant negative long-term consequences.  Sellers must understand that they must maintain the day-to-day operations as though the business is still theirs.  The old saying, “Don’t count your chickens before they’ve hatched,” most definitely applies to selling any business.  Business deals fall apart all the time.  This is true from small deals to corporate acquisitions. 

3. Overall Lack of Preparation 

Any seller who is truly serious about selling his or her business will have all of their documentation available and well organized.  This list would include financial records, environmental studies, business forecasts and more.  It is important to make a good impression and convey to prospective buyers that a business is well organized and ready to be sold.  Disorganization on any level could make prospective buyers worry that the business isn’t being operated in a professional manner.

4. Holding Misconceptions Around a Business’ Value

Finally, a real “deal killer” can be when sellers don’t understand (or have a mental block) concerning the real value of their business.  This issue can lead many business owners to set a price that is simply too high or even completely unrealistic.  Many sellers have put years of blood, sweat and tears into a business.  Learning that their business isn’t as valuable as they had hoped can be an emotional, psychological and financial blow all in one.  But sellers also have to adjust to the realities of what the market will bear. 

Avoiding seller pitfalls is incredibly important.  Working with a skilled and proven business broker or M&A advisor is a way for buyers and sellers alike to avoid an array of significant problems that could otherwise arise.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles

Successfully Navigating Seller Financing

March 20, 2025 By

Only a small percentage of the population is able to go through life without using some form of financing at some point.  Most people have little choice but to finance everything from their home and car purchases to their college education.  Now, with that stated, most business owners would love to receive an all-cash offer for their business.  But the reality of the situation is quite different.  The facts are that owner financing is very common, and it is sometimes the only way to put a deal together.

Sellers have to be ready and willing to entertain the idea that they may, ultimately, be called upon to handle some aspect of financing if they want to sell their business.  It surprises many to learn that if a seller is not willing to finance the sale, then buyers begin to worry and may even see this as something of a “red flag.”  The reason for this is that many buyers feel that if a business is a solid investment, then the business will be profitable and repaying the seller should be no problem. 

Buyers may worry that if a seller isn’t willing to help with financing there could be a “hidden” problem with the business.  It might occur to them that sellers are “jumping from a sinking ship.”  It is important that sellers keep this important aspect of buyer psychology in mind when addressing whether or not they are willing to finance.

Buyer psychology plays a major role in another aspect of seller financing and that comes in the form of collateral.  Sellers may want to have some form of outside collateral to secure the loan on their business.  While this may seem perfectly understandable to the seller, buyers can have something of a nervous response to this issue as well.  As much as buyers worry that a seller’s refusal to provide financing is a red flag, the same holds true for sellers who seek collateral.  Once again, the concern is that if the business was healthy and thriving there should be no need for collateral.  The buyer is left wondering, “What is going on here?  How worried should I be?  Why do they need collateral if this business is so great?” 

Typically, buyers are “maxed out” when buying a main street business.  They are allocating most of their available funds to the down payment on the business.  That means they will be unlikely to “push all their chips in” and gamble everything by also putting up the home, retirement funds or other collateral in the process.  Sellers need to see the situation from the buyer’s perspective and remember that a collateral requirement could mean that if the business fails, the buyer could be left with nothing.

Navigating the complex interaction between buyers and sellers is no easy feat.  It requires a careful balancing of several different skills, ranging from understanding finance to psychology.  Working with an experienced business broker can help buyers and sellers connect and find workable agreements so deals can get made.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles

Price or Terms: The Structure of the Deal

March 20, 2025 By

An old saying in negotiating the sale of a business goes like this: The buyer says to the seller, “You name the price, and I get to name the terms.”

Another saying used to explain the actual value of the term full price: “If we could find you a business that nets you $250,000 a year after debt service, and you could buy it for $100 down, would you really care what the full price was?”

It seems that everyone is concerned only about full price.  And yet, full price is just part of the equation.  If a seller is willing to accept a relatively small down payment and carry the balance, a higher full price can be achieved.  On the other hand, the more cash the seller wants up front, the lower the full price. If the seller demands all cash, barring some form of outside financing, full price lowers – and, in most cases, the chance of selling decreases as well.  Even in cases where outside financing is used, such as through SBA, etc., the lender will do everything possible to ensure that the price makes sense.

Sellers should understand that both what they hope to accomplish in the sale of their business and the structure of the actual sale can dramatically influence the asking price.  Price is obviously important, but other factors may be even more important.  For example, consider a seller with health issues who needs to sell as quickly as possible.  In his case, timing becomes more essential than price.  Another seller may place more importance on her business remaining in the community.  In her case, finding a buyer who will not move the business may supersede price or certainly influence it.

Likewise, the structure of the deal can both influence price and be a more significant factor than price to either the buyer or the seller.  The structure can dictate how much cash the seller receives up front, which may be more important than price for some sellers.  On the other hand, sellers should also be aware how much the interest on their carry-back can add up to.  If cash is not an immediate concern, monthly payments with an above-average interest rate may be enticing.

These examples all demonstrate the importance of the business broker professional sitting down with the seller prior to recommending a go-to-market price.  During this meeting, the broker should find out what is really important to the seller, as these issues may have a direct bearing on the price.

Sellers should look at the following factors and rank them according to importance on a scale of one to five, with five being extremely important.

•    Buyer Qualifications
•    Full Price
•    Amount of Cash Involved
•    Financing
•    Confidentiality
•    Commission/Selling Fees
•    Closing Costs
•    Exclusive Listing
•    How the Business is Shown
•    Advertising/Marketing
•    How a New Owner Continues the Business

By ranking these items and discussing them with a professional Business Broker, a seller can receive helpful advice from the broker on price, terms, and structuring the sale.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles

Considering Generational Strategies

March 20, 2025 By

When you are buying or selling a business, you might very well end up making a deal with someone from another generation.  Therefore, it only makes sense to take the time to understand that individual’s background and how that might cause behavioral differences.  It is important to understand and reflect upon where many of them are coming from and the collective experiences and trends that shaped their identities and perspectives.  At the same time, you can identify your own biases, strengths and weaknesses that may be caused by your own upbringing.

The strategies in this article originated from Chuck Underwood who is considered a leading expert in the diversity of communication styles between generations.  He is the author of a major book on the subject as well as host of the long-running “America’s Generations with Chuck Underwood” on PBS. 

Generational Sensitivity 

Underwood’s perspective is that people of each generation were molded by their unique formative years.  The decisions that buyers and sellers make will be impacted by their generation.  Mostly likely, the buyers or sellers you will be coming into contact with will be either Baby Boomers, Generation Xers and Millennials. 

Working with Baby Boomers

Baby Boomers (those born between 1946 and 1964) are a major force in the business world.  While they often possess a patriotic passion to improve the country, they were also witness to a time of great change via many movements including the civil rights and women’s movement. 

When you’re dealing with Baby Boomers, it is important to remember that they will want to build relationships and get to know you.  Common courtesy is very important to Baby Boomers.  That means they’ll expect you to show up on time and turn your phone off during meetings. 

You’ll want to keep in mind that older Baby Boomers may be experiencing hearing and eyesight loss.  As a result, you’ll want to keep your type and font size larger, and make text easy to read. 

When you’re working with your clients, it only makes sense to pay attention to the generation during which they were raised and adapt your approach accordingly.  Understanding generational differences will help you get a leg up on the competition while at the same time helping your clients achieve their goals.

What is Generation X?

Generation X (or Gen X) had a wildly different formative experience than the Baby Boomers.  Generation X is generally defined as being born from 1965 to 1980.  This generation spent its formative years from the 1970’s through the 1990’s.  In stark contrast the relatively more pleasant and optimistic childhoods of the Baby Boomers, Gen X had a rougher ride. 

America became more mobile during the time period during which Generation Xers grew up.  As a result, many children were uprooted and separated from their friends, family and hometown roots.  Growing up, these individuals witnessed a variety of scandals ranging from political and religious figures to sports figures.  Gen Xers witnessed the systematic dismantling of the American middle class and with it a general lowering of quality of life, opportunities and confidence in corporations.  In the end, Gen X was quite literally left home alone and lived as “latch key kids.”  It is no wonder that this neglected generation has some issues.

Individuals growing up during this time learned early on that they had to be ready to fend for themselves.  Since Gen Xers have been met with consistent and systematic disappointment and even wide scale institutional betrayal, this generation, on average, is more distrustful of organizations. 

Gen Xers are self-reliant and independent and one of their core values is survival of the fittest.  In his view, Gen Xers are self-focused, individualistic and want everyone to skip the nonsense and get to the point.  They have no real interest in getting to know you or playing a round of golf.

Working with Millennials

Millennials spent their formative years in the 1980s and early 90s.  They are a very optimistic and tech savvy generation.  They are also the most classroom educated generation in history.

It is also very important to note that Millennials are the most adult supervised generation in history.  So-called “helicopter parents” who work to protect their children from setbacks are the norm.  Employers find that Millennials are entering adulthood, but are still relying upon their parents to help them make decisions and even career choices.

Where Gen Xers are distrustful of the “wisdom of their elders,” Millennials actively seek out such advice.  Likewise, Millennials tend to volunteer a good deal and look for ways to solve the world’s largest problems.

You will find that Millennials will enjoy building a relationship with you.  Keep in mind these individuals tend to be quite socially conscious and they may very well expect you to agree with their views.  Additionally, there is a chance that they will have their parents involved in their business dealings. 

Keep in mind that the de facto tech addiction, or at the very least acute overreliance on technology, has led to issues with Millennials’ soft skills.  They can often lack the ability to read another person’s body language and adjust accordingly.

In the end, regardless of what generation you are working with, it is important that you continually adapt.  This will greatly increase the odds of cementing a successful deal.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Buyer Articles, Seller Articles

Confidential Business Reviews Should Establish Trust

March 20, 2025 By

When you are selling a business, your business broker or M&A Advisor will likely create a Comprehensive Business Review, or CBR.  This comprehensive document can then be presented to prospective buyers once they have signed all necessary confidentiality documentation.  It is essential that this document builds trust between both parties, as this will go a long way towards achieving a successful deal. 

Be Honest

The bottom line is that your CBR will be 95% positive.  The majority of the document will be dedicated towards selling and promoting your business.   Therefore, it only makes sense to disclose some potential problems.  When handled correctly, the disclosure of problems can actually be a strong asset. 

For example, current weaknesses of your business could become strengths in the mind of the buyer.  For example, a business with a very poor online presence represents a substantial opportunity for a buyer to improve marketing and communications.  Summed up another way, don’t be afraid to include negative information, especially if that information represents an opportunity.

Sharing Information

It is important that there is an element of trust between the parties.  Creating that sense of trust begins with the CBR’s seller section. 

Buying a business is radically different from buying a home.  When someone buys a home, they usually don’t care too much about the person who they are buying the home from.  But buying a business is usually a different experience.  Your buyer will want to feel as though they have a fairly clear understanding of who you are and what you are about. 

In the seller’s section, the buyer should get a decent idea of who you are.  Your broker or M&A Advisor will want to interview you to gain ample information to include in your CBR.  Your broker may even want to find out about your family, hobbies, interests and more.  You may even want to consider including photos of yourself and your family.  

The bottom line is that a potential buyer should be able to pick up the CBR and get a good feel for what you are like.  If no level of trust is ever established between the buyer and seller, then it will be much more challenging for the deal to be successful.

Copyright: Business Brokerage Press, Inc.

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Filed Under: Seller Articles

Unraveling the Seller’s Predicament

March 20, 2025 By

Selling a business isn’t always 100% about the price.  It is not like selling a house where typically the most important factor is who places the highest offer.  In the end, if the seller is to achieve the most optimal results, there are other variables that should be considered. 

The idea of selling to a competitor is one that seems attractive to many business owners.  After all, a competitor has the built-in advantage of understanding the business and thus can theoretically understand the value of the business better than an outsider.  But while this point is quite valid, selling to a competitor comes with its own problems.  Selling means disclosing a great deal of confidential information, and that could prove to be very risky if the deal were to fall apart.

A second avenue that sellers will often explore is selling to a financial buyer.  A financial buyer is likely not to be a competitor.  But on the downside, a financial buyer may be unwilling to pay the seller’s price.  It is important to remember that a financial buyer is considering buying the business with the intention of selling it for a profit within a few years.

The highest selling price may come from a strategic acquirer.  But this doesn’t necessarily mean selling to a strategic acquirer is the most prudent course of action for a seller.  A strategic acquirer may not have the best interests of the company at heart.  When a strategic acquirer takes ownership, key employees and management may be replaced.  The company may even be moved.  Many owners are unprepared for the shock that may come along with a strategic acquisition.

There are other potential buyers, many of whom are frequently overlooked, who may be the optimal fit for a given business.  It is possible that the best buyer for a company could be one of its employees.  However, this option comes with risks as well.  Key employees and management may leave if the deal falls through, as they now know that the company is for sale.

Finding overlooked buyers is what business brokers do best.  Matching the right buyer with the right business is both a science and an art.  Teaming with the right business broker or M&A advisor can open up a range of new avenues and help a seller reach the kind of buyer that is as close as possible to the perfect fit.

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Filed Under: Seller Articles
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