All too often, sellers focus all their attention on the purchase price without giving much thought to structuring a deal. But while all-cash deals might sound simple and convenient, they often come at a cost. These days, structured deals are much more common – and rewarding – than those comprised of lump sums. In fact, the more flexible your deal structure, the better your chances of enjoying a satisfactory chauffeur business sale.
There’s a reason cash deals are on the decline. In recent years, it has become more difficult for borrowers to obtain traditional financing and credit. Lenders often fail to understand the valuation of a limo business and are especially wary of investors without a great deal of industry experience. SBA goodwill financing – once an important tool for buyers seeking funding – is harder to obtain. Sellers who hold out for 100 percent cash reduce their buyer pool and, often times, their price. By supplementing a buyer’s available funds with a seller note or earn-out provision, owners can increase their chances of making a deal with an optimal buyer.
Many times, an owner will stay on to assist the buyer after the transfer of a limousine business for sale. Maybe the new owner has little experience in the chauffeur business and could benefit from retaining the seller as an independent consultant. Perhaps the seller wants to stay actively involved with aspects of the company such as customer relations, but is ready to give up the burden of managing the business. A designated amount of owner involvement can boost lender confidence and decrease the risk that customers and employees will leave after leadership is transferred. By building an employment or earn-out agreement into the deal, the seller may be able to earn returns and turn over responsibilities while maintaining a small stake in the company.
While the idea of a lump sum is certainly appealing, it may not be the smartest financial strategy. When cash from a purchase is received all at once, taxes will also be due all at once. Many business owners fail to take into account just how much of a bite Uncle Sam will take out of the purchase price of their limo company for sale. When compensation is distributed over a period of years as a result of seller financing, taxes can be paid over time. You can’t avoid the tax man. But the longer you can keep your money invested in your business – rather than in the government’s pockets – the greater your opportunity for returns.
A business sale can have benefits above and beyond cash. By allowing a business owner to find a qualified buyer, enjoy a smooth transaction, and lower the tax burden of a sale, a properly structured deal can be worth its weight in gold.