Preparing and Coordinating the Sale of the Laboratory

The process of selling a business is not unlike the job of the quarterback of a football team. The CPA, the financial advisor, attorney, and others are involved with assisting the owner on who should be retained as this coordinator, or transition broker, as well as the appraiser of the dental laboratory. It is critical that the owner choose a team leader whose judgment they trust and who demonstrates resourcefulness and the ability to understand the language of all of the advisors. Unfortunately, it is difficult to name one person who is the "lead" advisor. There are various reasons why this is so challenging. For example, a laboratory owner may have a business broker who is in charge of listing, marketing, and bringing potential buyers to the dental laboratory. The broker and dental laboratory owner will usually discuss pricing after the owner has consulted with their business advisor, CPA, and possibly an estate and financial planner, as well as having received a qualified appraisal.

The coordinator of this process should also be able to advocate to those advising the potential buyer on how he or she will profit from the transaction as well. While the coordinator is the advocate for the seller, the transfer of ownership may not occur without assisting the buyer. Consider the terms of a potential agreement alongside the price. Sometimes the terms assist in allowing a mid-level offering price to win based on many other considerations. 

There are at least two aspects for the buyer and seller to consider: one is the transfer of ownership, and the other is the taxes. Essentially, it is all about the money involved. How much is paid, and how fast do the dollars change hands? A money-in-hand, present-value approach is typically the end of the economic discussion. Who wouldn't rather have thousands of dollars today rather than waiting until next year or over longer periods of time to receive the same or only a little bit more money? However, once advisors get involved and the owner better understands the tax consequences, the entire logic behind a present-value approach can change.

For example, it is established that the best terms for a buyer are not so good for a seller. If a buyer is able to write off something quickly, a seller must report the income quickly, all other things being equal. This concept demonstrates large tax savings for a buyer but marginal benefit, at best, for the seller, forcing the seller to be in the highest tax bracket at that time. When the seller reports a capital gain—typically the lowest tax rate available—the buyer must write off the acquisition costs over the longest term, if they are able to get a tax write-off at all.

An advocate for the seller who does not want to risk losing the buyer because of the tax consequences understands the whole situation. He or she will work with the buyer's advisors so that, while they are supporting the buyer, the seller's advisors do not make things so difficult that they find the prospective buyer walking away from the transaction. This involves a reasonable knowledge of tax implications, economics, and financing strategies from conventional and non-conventional sources.

A seller wants his or her own advisors to understand the language of sales transactions and the ability to help find financing solutions. It is rare for a buyer to have enough money in the bank to acquire a dental laboratory without some type of financing. The parties representing the seller may even assist the buyer's representatives with the provisions from their own financing if the transfer of ownership requires some type of seller financing from a conventional lender.

Once a buyer is found, the discussions begin among all of the advisors when the broker comes back to the owner with the initial offer. The economics of the transaction, the tax ramifications, and all of the planning for the seller's future should take place prior to finalizing the sale, so that there are as few unknowns as possible for the seller. This is a long process but is a critical one so that there are as few misunderstandings as possible.

It is likely that the seller does have someone who he or she feels most comfortable with in terms of relating to this process and in receiving advice. That may be the "quarterback" of the transaction, even if they are not one of the more common types of advisors for this role.

As trust is the most important thing, coordination may end up being a shared role with all of the parties. The seller of the dental laboratory ultimately determines the approach that works best for them. Only they can make the final critical decisions about one of the most valuable ventures of their past and how selling it will help determine their future.

Bruce Bryen, CPA, CVA, is the principal in the firm of RKG Tax and Business Services, LLC, in Fort Washington, Pennsylvania.