If you’re considering selling your business or buying a new business, then chances are, the concept of price allocation has probably crossed your mind more than once. This complicated process, which involves affixing prices to the assets of a business, affects both buyers and sellers in a profound way and has the ability to single-handedly make or break a deal.
It is important to realize that price allocation takes into account both tangible assets (those assets that are physical, fixed items, such as cash, property, and equipment) and intangible assets (those assets that are non-physical but still affect a business’s value, such as customer loyalty), but it addresses these assets very differently. The tax rates for these types of assets are very different- up to thirty-five percent for tangibles and up to only fifteen percent for intangibles-, and this results in a huge conflict of interest for buyers and sellers. Whereas buyers will benefit the most from categorizing assets as intangible and therefore incurring fewer after-sale taxes, sellers will benefit the most from categorizing assets as tangible and incurring higher capital losses during the sale, which allows them to take advantage of valuable tax write-offs. If buyers and sellers cannot somehow work together to align their allocation interests, they risk killing the deal or being investigated by the IRS after the deal has gone through.
As you can see, price allocation is a very important factor in the sale of a business. Professional business brokers like the experts at the Tenney Group, are fantastic resources for both buyers and sellers because they understand the details of business sales, especially sales involving transportation businesses. Their experience can help you through price allocations, negotiations, and closing procedures, all while making your best interests their first priority.