Selling a crop insurance agency is a multifaceted process that includes valuating your business, finding the right buyer, evaluating tangible assets, and choosing the right payment structure. Whether you're planning a full sale or negotiating specific components, knowing how each element affects your financial outcome is key.
Tangible Assets
If you’re selling your crop insurance agency outright, most of your tangible assets will need to be appraised to determine a fair sales price. Examples of tangible assets include:
- Real estate (land or buildings)
- Vehicles
- Computers and other office equipment
- Furniture
- Accounts receivable (or payable)
- Accounts receivable are usually not appraised by an appraiser. Instead, a net present value (NPV) calculation is typically completed.
Keep in mind physical assets may lose their value over time through depreciation that can occur due to changes in the market, routine wear and tear, or from becoming obsolete. When an asset is appraised, the lifetime of the item will be considered so it’s always a good idea to keep detailed records.
It’s also important to remember that the sale of your business assets will impact the capital gains and losses reported on your tax returns.
Payment Structures
Another important tax consideration includes structuring payments to meet your personal preferences and business needs. Two common types of transactions include installments or lump sum payments.
Lump sum payments are straightforward. A single payment from the sale of your business will cause any capital gains or losses to be recognized in a single tax year, and you as the seller will have peace of mind knowing proceeds from the sale will be returned to you in total.
Installments, on the other hand, can be advantageous by allowing you to spread out payments over time as well as the tax burden associated with those payments. Sometimes, installment payments will keep the seller’s proceeds in a lower tax bracket than a lump sum payment would incur.
Ultimately, it is up to you as the seller to decide what payment structure will work best for you. Your tax advisor can help you structure a deal that complies with tax law and minimizes your post-sale tax obligations.
