How Business Brokers Can Establish a Competitive Advantage in Their Market

“Competitive advantage refers to factors that allow a company to produce goods or services better or more cheaply than its rivals.” -investopedia.com

As a business broker, you know that selling a business is not easy. There are many factors to consider, including finding the right buyer, negotiating a fair price, and dealing with taxes. However, we will explore how an Installment Sale Trust (IST) can help you gain a competitive advantage in your market.

This guide will discuss an IST, how it works, and why it can benefit your brokerage.

First, let's talk about capital gains.

Capital gains taxes are taxes imposed on the profit from selling an asset, such as a piece of real estate or business. The capital gain is calculated as the difference between the sale price of the property and the original purchase price, also known as the "cost basis."

For example,

if you purchase a house for $200,000 and then sell it for $1,000,000, the capital gain would be $800,000 ($1,000,000 - $200,000). In this case, you would be required to pay capital gains taxes on the $800,000 profit, which would be $288,000 in California (federal + state ~ 36%).

The capital gains tax rate can vary depending on several factors, including the time the property was held, the taxpayer's income, and whether the property was used as a primary residence.

If the property was held for more than one year and was not a primary residence, the long-term capital gains tax rate could be as much as 36%, combined with state and federal taxes.

**288k in capital gains taxes is calculated in California from a 36% capital gains (Federal + State) tax on the 800k profit.

**All numbers above are estimates; your individual circumstances may be different

**Please note that other tax considerations, such as state and local taxes and depreciation recapture, may also apply to the sale of real estate.

Diagram of the provided example

What is an Installment Sale Trust (IST)?

An installment sale trust is a type of trust that is used to sell real estate on an installment basis. The seller sells the property to the trust, and the trust then sells the property to the buyer for cash on an installment plan. The buyer makes payments to the trust, using the money to pay the seller. The trust may also hold the title to the property until the buyer has made all of the payments.

This trust can help a seller obtain a larger payout and higher asset appreciation over time. It can also help a buyer get financing for a property they may not have been able to purchase outright.

An installment sale trust can be complicated, and our services can help simplify it. The trust involves several legal and tax factors that must be considered, making it difficult for an individual to navigate these complexities independently.

For example, the trust must be set up and managed correctly to provide the desired tax benefits. This requires understanding the tax laws and regulations that apply.

*It is important to note that installment sale trusts are complex financial instruments. It is advisable to consult with a tax professional or attorney to determine if it is the right strategy for your situation.

Why is marketing an IST Beneficial for Business Brokers?

An IST is beneficial for business brokers and their partners for several reasons:

1. It saves their clients more money on taxes.

2. It can provide a competitive advantage in the market, as few brokers offer this option.

3. It can result in more revenue for the broker, who can charge fees for using an IST.

IST vs. 1031 Exchange: Which is Better?

First off, 1031s can't be used for Businesses; however, they can be used for the real estate the business is on... leading to 2x commission for you! Moving the real estate and business both into the trust allows higher payment while negating liability to your client.

A 1031 exchange is another option for deferring taxes on the sale of a business. However, several key differences exist between an IST and a 1031 exchange. An IST allows for greater flexibility and does not require the purchase of another property. Additionally, an IST can result in a 6% asset appreciation, which is impossible with a 1031 exchange.

How You Can Start Marketing ISTs for Your Brokerage

At CommQuality, we work alongside financial professionals who were some of the founders of the IST strategy. We can help you implement this strategy into your business, and we can also run marketing campaigns via Google Search Ads in your area of work.

By partnering with us, you can offer your partners the benefits of an IST and gain a competitive advantage in the market. Our team of experienced copywriters can help you craft compelling messaging to promote your business and the benefits of an IST. We also offer website design services to help you create a professional landing page to showcase your business and the IST strategy.

Click Here to Schedule a Meeting With Our Marketing Team and IST Partners!