Mind Your Business: Selling for Cash

By Steve Michaels

Question: I have been told that most telemessaging services are currently receiving cash for the sale of their business. Is there ever a time when a seller wouldn’t want cash?

Answer: Yes. If you’re selling a C Corporation, odds are you’ll be selling stocks, not assets. If you were to sell the corporation’s assets, the corporation would have to pay tax on the sale, and you would personally have to pay tax a second time on the “after-tax” amount you remove from the corporation. Having the sale of your business actually taxed twice may put a burden on you.

Other situations when you may want to accept terms or some other arrangement instead of cash would be if you have had a substantial capital gain from other sources. The sale of your business could put you in the position of paying additional taxes you aren’t prepared for. You may want to defer proceeds from the sale to the following year or make some other compensation arrangements in order to lessen the burden of tax from the sale.

When considering selling your business, seek the guidance of a professional tax advisor. This professional will also help you consider the consequences of the transaction for your employees and other service providers.

Steve Michaels is a business broker and can be contacted at 800-369-6126 or tas@tasmarketing.com for questions. His website is www.tasmarketing.com.

[From Connection Magazine March 2007]