Selling Your Business Using Installment Sales

shaking-handsIf you are thinking about selling your business, you should be aware of some of the different ways you can structure the sale. Recently I’ve discussed several ways to sell your business in a recovering economy. Be aware that there are various options that may be available to you, depending on your situation, that can both make the sale more appealing to a buyer and can benefit you, the seller, as well. Today I want to talk about one option, the installment sale.

When selling your business via installments, the buyer makes payments to you, including interest, over a period of time that is determined beforehand. You, the seller, will typically be the one to finance the sale. You can see how this might benefit the buyer, who may not be in a position to buy your business outright and may need the financing you provide. But what are the advantages to the seller when selling a business using installments?

The most common reason for an installment sale of your business is that it allows you to defer certain taxes on the income from the sale. If you receive payments from the buyer over an extended period of time, you may be able to defer some of the capital gains tax on the sale of your business, paying the tax over a period of time as you receive the installment payments. In the meantime you could also be earning interest on the portion of the proceeds that will ultimately be paid in taxes – which increases your overall return. You also may be able to structure an installment sale in such a way that you receive a higher price for your business than you would via a traditional type of sale.

Because installment sales are complex transactions, be sure to use a professional adviser when selling your business in this way. You may want to ask your adviser about using an “ensured installment sale,” also known as a “structured sale.” This is a type of installment sale that protects the seller from the buyer defaulting on the installment agreement.

Offering installment payments can be a good option when selling your business during tougher economic times, when potential buyers may be recovering from the recession. Giving the buyer more time in which to pay you might mean more profit in your pocket in the long run.

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About Gary T. Brooks

Gary T. Brooks has over 27 years of experience in the investment banking industry and has been involved in over 100 transactions. He is currently the CEO of ExitPlanPros, where he helps business owners grow their business while planning their exit.

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