Small Business

Some variables that may be negotiated to complete a deal is; the amount of the down payment, the interest on a note taken back, the time the seller is willing to carry the note, all cash verses cash and note deal, the possibility of a consulting contract for the seller as part of the purchase price.

The cash flow statement provides a summary of the firm's operating, investment and financing cash flows and reconciles them with changes in its cash and marketable securities during the period of concern. The cash flow statement is sometimes called a source and use statement. This statement will reveal whether or not the cash generated by the business is enough to pay the principle and interest on the financing required to buy the business.

Generally, both the buyer and seller of a group of assets that make up a trade or business must fill out IRS Form 8594 to report the sale if goodwill or going concern values are involved. The sales price is allocated among the transferred assets using the residual method formula (proportion of sales price to an assets fair market value at date of sale) in a specific order set out on Form 8594. Speak to your local CPA about the sale of your business.

Subject to certain exceptions sole proprietorships, C and S Corporations, Partnerships and 1041 Fiduciaries must file Form 8594 when a business is sold inclusive of goodwill. Speak to your local CPA about the Form 8594 requirements.

The cost of business intangibles such as Goodwill, covenants not to compete amounts, trademarks are amortized over a 15 year period. Most intangible assets are expected to benefit more than one year, so their cost is a capital expenditure under Internal Revenue Code section 167 (depreciation), the primary authority for deducting intangibles

You and your local CPA can structure the sale using the installment method. The installment method is a special method of reporting gains from sales of property where at least one payment is received in a tax year after the year of sale. Under the installment method gain from an installment sale is prorated and recognized over the years in which payments are received. The installment gain is reported on IRS Form 6252.

Any ordinary income as a result of the sale of a business asset must be reported as income in the year of sale regardless of when payment is actually received. If the business sale includes Inventory or Accounts receivables then these assets cannot be part of the installment sale. Speak to your local CPA about your business sale for more details.

Laws vary from state to state. Successor liability laws transfer responsibility for payment of certain business debts to the new owner when a business is sold. You should check for possible back taxes, liens, penalties and fines that may transfer to you upon purchase of the new business.

Yes. IRS Form 8594 is used to allocate the sales price over the purchased assets. On Form 8594 are 7 classes. The assets are allocated from class 1 through class 7. Class 1 = cash type assets such as bank accounts. Class 2 include assets such as CD's US government securities, foreign currency and readily marketable securities or stock. Class 3 include marks-to-market including accounts receivable. Class 4 are stock in trade assets included in inventory. Class 5 are all other assets other than 1,2,3,4 assets. Class 6 are section 197 intangibles except goodwill and going concern assets. Class 7 are goodwill and going concern assets.