For many trucking business owners, an all-cash deal is the ultimate dream. What could be better than exiting the market with a large lump sum and no strings? As it turns out, 100 percent cash deals are no longer all they’re cracked up to be. While cash transactions occasionally occur in the trucking industry, they have become few and far between for a number of reasons.
Once the norm, cash deals began to fall out of favor when traditional lenders tightened their guidelines for business loans and SBA goodwill financing became less readily available. Unless you are selling a trucking company to a private equity group or an especially large corporation, it’s unlikely that the buyer will have enough cash on hand to cover the purchase price. Therefore, some amount of financing will be necessary to make a deal happen. When bank loans and private investments won’t cut it, many owners find that offering to carry a note helps bridge the gap between your asking price and what a buyer can afford.
If you’re dead-set on receiving nothing but cash for your small trucking company for sale, be prepared to accept a below-value price. Because few investors have the funds to pay for a business upfront, putting strict limits on deal structure shrinks the buyer pool by eliminating qualified candidates – some of whom might have been willing to pay above and beyond value for strategic benefits offered by your company. For those buyers who can afford to pay cash, fronting such a large amount of their own money – and taking on potentially large debts – increases risk. When buyers are forced to shoulder most of the risk associated with a deal, they will discount their price accordingly. By agreeing to finance a portion of the sale or accept contingent payments, sellers have the ability to balance risk and boost buyer confidence, allowing investors to increase their price.
As you price a trucking company for sale, it’s important to consider the actual amount you’ll receive from a transaction. When planning their post-sale life, many sellers forget to keep in mind that their transaction is taxable. Taxes will vary based on the classification of a business and structure of the sale. But in general, if a seller receives a lump sum, federal taxes – and possibly state and local taxes – will be due in large single payments as well. However, if a buyer is allowed to make payments over a designated period of time, it may possible for the seller to defer taxable gains. It’s better to keep your dollars tied up in a well-performing business than earning zero returns in Uncle Sam’s back pocket.
There are many ways to structure the sale of a truck business. But by forgoing some cash to boost buyer convenience, sellers can often boost their own outcome.