Deal structure determines your taxes, liability, and returns. Here's the playbook:
Asset Purchase vs. Stock Purchase: 95%+ of small business deals are asset purchases. In an asset deal, you're buying specific assets (customer list, equipment, brand, contracts) rather than the legal entity. This is better for buyers because: - You don't inherit unknown liabilities - You get a stepped-up tax basis on assets (depreciation/amortization benefits) - You can cherry-pick which assets and liabilities to assume - SBA lenders strongly prefer asset deals
Stock purchases are rare for small businesses but may be necessary when: - The business has non-transferable contracts or licenses - There are significant tax benefits in the entity - The business has favorable lease terms tied to the entity
Typical financing structure: | Component | Percentage | Example ($1M deal) | |-----------|-----------|-------------------| | SBA 7(a) Loan | 70–80% | $750K | | Seller Note (standby) | 10–20% | $150K | | Buyer Cash Equity | 10–15% | $100K | | Total | 100% | $1,000,000 |
Purchase price allocation (critical for taxes): The total price is allocated across asset categories: - Goodwill — The premium above tangible asset value (amortized over 15 years) - Equipment & FF&E — Depreciated over useful life (5–7 years typically) - Inventory — Expensed as sold - Non-compete agreement — Amortized over agreement term (3–5 years) - Training/consulting — Expensed in year paid
Buyers prefer allocating more to equipment and non-compete (faster depreciation). Sellers prefer goodwill (capital gains treatment). This negotiation matters — it can mean $50K+ in tax differences.
Earn-out provisions: Sometimes part of the price is contingent on future performance: - Common: 10–20% of price tied to revenue or EBITDA targets - Typical term: 1–3 years post-close - Protects buyer if business underperforms post-sale - Can help bridge valuation gaps between buyer and seller expectations