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PDtax
PDtax, CPA, MBA
Category: Finance
Satisfied Customers: 4621
Experience:  Tax professional and business consultant for 35 years.
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I am selling my business. Should I try all cash deal if it

Customer Question

I am selling my business. Should I try for an all cash deal if it is 20 percent lower than holding paper for 7 years
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.

Hi from Just Answer. I'm PDtax. I'll assist.

Expert:  PDtax replied 1 year ago.

The best deal you can make is all cash. It means you have to pay the tax pretty quickly, but you avoid so many risks by doing so. The 'discount' is not how to think of the sale, but instead the premium you ask for by taking payments over time.

Let's say you want to sell for $100,000 cash, or you will receive $17,000 a year for 7 years. I would take $100,000 up front, no questions asked.

Let's say you can invest the $100,000 for 4%. If you don't have to touch the money, other than pay the tax, you will earn the 20% difference and have no risk. If the business fails, if the buyer gets ill, if a competitor enters the market and steals clients or market share, you are not affected.

The 20% price adjustment works out to less than 5 years at 4%. That simple math, added to the elimination of so many risks to you actually receiving your sale price, is overwhelming to me. Take the money up front if at all possible.

I can think of a number of deals that fell apart years later, sometimes for risks that weren't either party's fault. The last thing you should want is the legal cost of suing to get your payments from an injured or failing business.

Thanks for asking at Just Answer. Positive feedback is appreciated. I'm PDtax.

Customer: replied 1 year ago.
Great. I will be calling back to discuss in detail. An attorney broker friend puts the rate of non payment paper deals on small biz at 90 percent here in nj. My buyers are now trying for 290 up front and two six month balloons of 30 k. I wanted 340 which is reduction from 433 cash asked This is 3 times owner benefit and I can easily pull this amount out in 36 months if I continue to run it. 67 year old vet with pretty good health but tired of 100 hour weeks in 24 7 emergency repair ins co construction
Expert:  PDtax replied 1 year ago.

290K up front and 2 short term 30K payments is not bad. You could set up personal guarantees or otherwise limit the risk of the remainder, such as making the buyers pay for your collection costs, including legal. I might even consider a confession of judgment for the $60K, sign by both buyers. That would eliminate the need to go to court to litigate, and give you the tool to pursue your $$ if there are issues, which doesn't seem likely, since the cash is available from your buyers and the business is profitable.

You didn't ask my opinion, but accepting the deal your buyers propose (with a minor tweak they should go for) seems like a deal you could consider.

Thanks again. Don't forget to rate my assistance when we are done. I'm PDtax.

Expert:  PDtax replied 1 year ago.

Can I ask that you accept my work to close out this question?

I will be glad to assist further if needed, but need to close this question out. Please rate my assistance to close out this question thread.

PDtax