Deal Structure Analyzer: User Guide & Client Communication

Overview

The Deal Structure Analyzer is a powerful tool designed to help business brokers model different acquisition structures and understand their financial implications for both buyers and sellers. By inputting key deal parameters, you can quickly visualize how different structures impact cash flow, tax consequences, and risk allocation between parties.

This tool allows you to:

  • Compare asset purchases, stock purchases, and hybrid structures

  • Model various financing options including seller financing and earnouts

  • Calculate tax implications for both parties

  • Assess debt service requirements and breakeven points

  • Evaluate the risk profile of different deal structures

  • Provide clear, data-driven guidance to your clients

Deal Structure Analyzer

Atlantic Coast Brokerage & Advisory

Business Details

Asset Allocation

Financing Structure

Loan Details

Tax & Additional Details

Deal Summary

This summary provides an overview of the deal structure, key financial metrics, and risk assessment.

Deal Structure

Financial Breakdown

Key Metrics

Risk Assessment

Buyer Analysis

This analysis provides detailed financial implications for the buyer, including debt service, tax benefits, and return on investment.

Financing Structure

Debt Service

Tax Benefits

Cash Flow Analysis

Seller Analysis

This analysis provides detailed financial implications for the seller, including tax liabilities, payment timeline, and net proceeds.

Payment Structure

Tax Impact

Net Proceeds

Structure Comparison

This comparison shows how the current deal structure compares to alternative structures and highlights the implications for both buyer and seller.

Asset Purchase vs. Stock Purchase

Aspect Asset Purchase Stock Purchase
Tax Basis Step-up in basis for assets Carryover basis of assets
Seller Tax Treatment Ordinary income & capital gains Primarily capital gains
Liabilities Buyer can choose which to assume Buyer assumes all liabilities
Contracts May require assignment/consent Typically transfer automatically
Complexity More complex documentation Simpler documentation

Financing Structure Comparison

Structure Type Buyer Impact Seller Impact
Higher Cash Down Lower debt service, higher initial cash outlay More immediate cash, lower risk
Higher Bank Loan Higher debt service, lower personal risk More immediate cash, lower risk
Higher Seller Financing Lower bank approval needed, seller has "skin in the game" Higher risk, deferred cash receipt
Higher Earnout Payment tied to performance, lower upfront commitment Highest risk, contingent payments

Your Deal Structure

Alternative Structure

How to Use the Analyzer

    • Select the deal type (Asset Purchase, Stock/Entity Purchase, or Hybrid Structure)

    • Enter the total business value

    • If using an asset purchase, specify the allocation percentages (inventory, FF&E, goodwill)

    • Input the buyer's and seller's estimated tax rates

    • Enter the cash down payment percentage

    • Specify bank/SBA loan percentage and terms

    • Add seller financing details if applicable

    • Include earnout/contingent payments if relevant

    • Input interest rates and loan terms for all financing components

    • Overview of the deal structure with component breakdowns

    • Key metrics including total costs and net proceeds

    • Risk assessment for both parties

    • Tax efficiency evaluation

    Buyer Analysis Tab

    • Detailed monthly and annual payment calculations

    • Tax benefits from depreciation and amortization

    • Breakeven analysis for cash flow planning

    Seller Analysis Tab

    • Cash flow timeline showing when proceeds will be received

    • After-tax calculations for different payment components

    • Tax implications by asset category (for asset deals)

    • Risk assessment based on payment timing and contingencies

    Structure Comparison Tab

    • Side-by-side comparison of different deal types

    • Analysis of how different financing structures affect key outcomes

    • Trade-off visualization between buyer and seller priorities

    • Use the tool to test "what if" scenarios by adjusting parameters

    • Compare different structures to find optimal solutions

    • Save screenshots or printouts of various scenarios for client discussions

 FAQs

  • The analyzer provides reasonable estimates based on the tax rates you input, but should not replace professional tax advice. We always recommend clients consult with their accountants to verify tax implications based on their specific situation.

  • Currently, you'll need to take screenshots or print results to compare different scenarios. Consider saving these in your deal files for future reference.

  • These should be based on the actual value of tangible assets relative to goodwill. For most small businesses, inventory typically represents 5-15%, FF&E 10-30%, and goodwill 60-85%, but this varies significantly by industry.

  • While this varies by industry, most lenders want to see a debt service coverage ratio of at least 1.25, meaning the business generates at least 25% more cash than needed for loan payments. Conservative buyers should target 1.5-2.0 for financial safety.

  • Earnouts should be tied to clear, measurable performance metrics that the buyer can influence but not directly manipulate. The analyzer helps you determine what percentage of the purchase can be reasonably tied to future performance.

  • The analyzer shows the tax advantages of each approach. Asset purchases typically benefit buyers through depreciation tax shields, while stock purchases simplify the transaction and may avoid assignment issues with contracts and licenses.

  • Industry norms vary, but typically 10-30% of the purchase price. The analyzer helps show how different levels of seller financing affect both overall proceeds and risk exposure.

  • Rates typically fall between bank rates and high-yield debt, usually 1-4% above prime rate. The analyzer helps demonstrate how different rates affect both total return and monthly buyer payments.

  • The analyzer breaks down tax impacts by structure and asset category. Asset sales typically result in higher taxes for sellers compared to stock sales, but the magnitude depends on your specific tax situation and asset basis.

Best Practices

  1. Always Run Multiple Scenarios
    Don't settle for the first structure. Test various configurations to find optimal solutions.

  2. Focus on Net Proceeds, Not Headline Price
    A lower-priced deal with favorable tax treatment can yield higher net proceeds.

  3. Consider Risk Allocation Carefully
    The analyzer highlights how different structures shift risk between parties.

  4. Balance Immediate vs. Long-term Benefits
    Some structures optimize for closing probability while others maximize total value.

  5. Use the Tool Collaboratively
    When appropriate, walk clients through the analysis to help them understand trade-offs.

  6. Pair Financial Analysis with Qualitative Factors
    Remember that non-financial terms like transition support and cultural fit remain important.

  7. Update Analyses as Negotiations Progress
    Rerun the analyzer with each significant structural change to maintain clarity on implications.