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Deal Structure Objectives
The key objectives for a successful deal structure include coming to a fair agreement on price (including meeting the seller’s price expectations) and ensuring that the buyers will be capable of operating the business in line with their current financial goals.
No two deal structures will be exactly the same, or include the same terms, and the buyer and seller should come to an agreement based on the unique elements of that particular business transaction. The buyer and seller, the industry, the economy, the financial market, and, of course, the business itself all will play a role in defining the deal structure.
Deal Structure Terms
There are a number of terms that will need to be agreed upon in order for any deal structure to be effective. Paramount to the success of a deal structure is the business purchase price agreement, but a number of other factors are also critical to the deal structure. These terms may include, but are not limited to, the following:
- The amount of the buyer’s down payment
- Whether the transaction is to be structured as an asset or stock sale
- The seller’s financing terms
- Any holdback of the purchase price as defined in an earnout agreement
- Consulting and/or non-compete agreements with the seller and any of the business’ key employees
- Terms related to any seller-owned real property used by the business
There are also a number of financial requirements that will affect the success of the deal structure, including factors that are both debt and equity/capital related. Some of these factors include:
- Expected compensation for the new ownership
- Debt service coverage ratio that is expected by the lenders
- Payback period on the buyer’s down payment
- Short term capital needs, post-closing
- Capital Availability post-closing to the business and its new owners
If you are preparing to buy or sell a small to medium-sized business, you may want to investigate the methods for valuing the business or use our business valuation tool.
I(sole owner) have a mix used building in San Diego, worth about 1.2 to 1.4 million. I am 62 years old with no heirs.. would like to structure a deal where I get approximately $600,000 and when I pass away the property would go to the investor of the 600,000.. I know there’s quite a few questions that still need to be answered, but I was wondering if this is a possibility to structures such a deal?
As long as your arrangement is legal, you can structure a deal any way that works for your investor and you.
Hire an experience business attorney who understands the tax ramifications (now and when you pass away) to help you structure your deal is my best advice!
All the best…
Selling a restaurant/tavern in New York state as a asset sale:
How to breakdown the equipment, building, realty, goodwill, non-compete in the selling price to the ideal benefit of the seller ?
Appreciate your advice,
When you sell the assets, the buyer and seller need to agree in writing to the allocation of the selling price. In fact, you’ll have a document that needs to be sent to IRS. So, what is better for one party may not be in the best interest of the other, which is why it must be agreed in writing.
The buyer wants the ability to depreciate the assets while the seller prefers long term capital gains.
I strongly advise you to obtain the services of both a tax advisor and attorney prior to negotiation of the terms.
Do You only deal with US sales/acquisitions?
We handle deals in the US and abroad.
If you need assistance or have questions, feel free to set up a call with me here.