OnwardLearn · Selling · Step 3. Learn what buyers would pay
What you'd actually keep
The short version
- The sale price is not what lands in your account.
- Business debt is paid off, advisors and any [broker](/learn/reference#business-broker "A person or firm paid, usually a percentage of the sale price at closing, to value a business, prepare the materials, find and screen buyers and manage the process. What a broker does and does not do is its own piece.") are paid and taxes are owed.
- Some of the price may be paid later, not at closing.
- Work through the math with your accountant before you set a price, not after you accept one.
From price to proceeds
Start with the sale price. Then subtract what comes out of it.
| Line
|
What it covers
| | --- | --- | |
Sale price
|
What the buyer agrees to pay in total
| |
Minus business debt
|
Loans, lines of credit, equipment leases and any liens on business assets
| |
Minus the costs of selling
|
Any broker fee, your M&A attorney, your accountant and other closing costs
| |
Minus money paid later
|
A note you carry, or money held back at closing to cover claims
| |
Cash at closing
|
What you receive the day the sale closes
| |
Minus taxes
|
Federal, and state if your state has an income tax
| |
Plus later payments, as they arrive
|
Payments on any note you carried, and any money held back that is released to you
|
Business debt
Most sales are "cash-free, debt-free." You keep the cash in the business bank account and pay off the business's debts at closing. Your attorney and the buyer agree on the details in the purchase agreement.
Any debt with a lien on business assets must be paid off, or the buyer cannot take clean ownership.
The costs of selling
These include any broker fee, your M&A attorney, your accountant and closing costs such as filing fees. Lesson 2.3 covers broker fees.
Money paid later
Part of the price may not be paid at closing. It may be a note you carry, where the buyer pays you over time. It may be money held back at closing for a period, to cover any claims under the purchase agreement. Lessons 8.4 and 9.6 cover both.
Taxes
How much tax you owe depends on how the sale is structured, what kind of company you have and your own tax situation.
Three things matter most:
- Capital gains or ordinary income. Profit on assets held more than a year is usually taxed at lower federal rates than ordinary income. Some parts of a sale are taxed as ordinary income anyway.
- Depreciation you already took. When equipment is sold for more than its value on your books, part of the gain can be taxed at ordinary rates.
- How the sale is structured. Selling the company's assets and selling the company itself are taxed differently. For some companies, an asset sale can mean tax at the company level and again when the money reaches you. Lesson 8.6 covers this.
This names the question. Your CPA, your M&A attorney and your lender answer it for your situation.
Where this lesson stops
This lesson ends at the money you keep. What to do with it afterward is a question for a financial advisor.
When you are ready to talk to someone
Nobody needs to know you read this. When you are ready, these are the questions to bring.
- For your accountant: "Can you walk me from a sale price to what I would keep, using my real numbers?" Listen for: every line in the table above, filled in, with taxes estimated for your situation.
- For your accountant: "How would the tax change if I sold the assets instead of the company, or the reverse?" Listen for: both versions side by side, in dollars.
- For your M&A attorney: "Which of my business debts have to be paid off at closing, and which could the buyer take on?" Listen for: a list, and what the buyer's lender will require.
When you’re ready
Most businesses are a few practical steps from a stronger handoff. Check your readiness