Buying or selling a business: regaining forfeited cash!

Posted on September 28, 2011 by Bill Faiferlick

What if the sale of your business or practice could be structured in a manner that it doesn’t cost the purchaser $1.54 million to purchase a $1-million business or practice? What effect would that have on the purchase price in a declining market? What if a strategy could allow the purchaser to treat approximately one-half of the purchase price as a deduction, thereby reducing the purchaser’s overall cost of purchasing the enterprise by $540,000 to $300,000?

In this strategy, the purchaser saves $240,000.

  • How much would the purchaser, depending, of course, on his occupation, have to bill in goods or services to generate a net income of $240,000?
  • If your profit margin were 20 to 30 percent, at 20 percent the gross business billing would be $1.4 million to clear $280,000.
  • At 30 percent the gross billing would need to be $930,000 to retain the same $280,000.
  • Let’s relate this to man-hours. How many months do you have to work to bill $930,000 or $1.4 million?

By adopting tax-smart strategies, the deductions benefit the purchaser and facilitate the sale for the seller. This strategy drives down the total overall cost to the purchaser by what must be recognized by any standard or measure as a significant amount.

It’s precisely this type of smart innovative strategic thinking that will help ensure you receive the highest sales price for your business or practice at a time when business and practice values are generally declining. Fewer individuals are willing or capable of assuming large debts in a turbulent, unpredictable economy to purchase a business or practice. The result is that you may need to be willing to postpone your retirement another ten years or so to allow the economy to recover and then make up the perceived value loss unless, of course, you structure the sale using tax smart strategies and environment opportunities available to you.