Q: In last week's column, you stated that my home-based agency might be an attractive acquisition candidate to a buyer that wanted to absorb my book of business into the buyer's existing office when I retire in a few years. How would I find such a buyer? What form should the payments take: a salary, a commission, a consulting fee or a payment for the purchase of my assets?
A: Your buyer would have to be an agency that was already reasonably confident that your book of business would stay after you left. It would also have to be someone that could offer expertise in your specialty and someone you know you could work with in the transition.
The prospects that fit that description are probably just your own host agency or another home-based agency whose owner you already know and trust. They would be the ones with the skill set needed to bet that they can keep your business intact.
If you do not have a host or do not know colleagues with home-based businesses like yours, you should consider affiliating with a host, who might well be impressed by your productivity and experience. You should also consider joining and becoming active in an organization or network of home-based agencies so that you can meet colleagues who might be interested in buying your book of business.
On the other hand, I do not think that large, nonhost agencies would typically be interested in buying your business, as it is probably too small in comparison to the resources that big agencies would need to devote to integrating your business into theirs successfully. With some exceptions, most large agencies specialize in corporate business, and they might not have the ability to handle your high-end leisure business, for example.
The payment structure is usually suggested by the buyer, who generally prefers to be able to characterize the payments as a current business expense, such as consulting fees or commissions, instead of a nonexpensible item, such as the purchase of assets. Your buyer can only depreciate intangible assets (i.e., your book of business) over 15 years, at the rate of 6.67% per year, even if the buyer pays much more quickly.
Consulting fees are ordinary income to you, which means that you might pay at a higher income tax rate than if you received payment for your assets, which are long-term capital gains to you. You should consult with a business lawyer or accountant to review these tax issues. Do so before you agree on a price and terms with a buyer, as the tax issues may make a lower price more advantageous than a higher price.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Mark Pestronk at [email protected].