How Small Business Owners Can Reduce Their Tax Burden Through MetLife’s Structured Installment Sale Solution

Selling a business isn’t easy. Business owners must find the right buyer, navigate the valuation process and negotiate terms, all while maintaining operations and preparing for a smooth transition. And that’s before the deal closes. Afterward, owners are often left with a sizable tax bill.

As business owners formalize their exit plans, they are in search of options that lower this tax burden.

“We’ve heard from people who say they can’t afford to sell because of the significant tax bill they would face,” said Ravi Vaswani, head of structured sales for MetLife. “They say anticipated tax obligations could reduce 40 to 50 percent of their business growth, which leaves some owners feeling limited in their ability to sell.”

This challenge is growing as more baby boomers retire. About 6 million small and medium-sized businesses will be on the market by 2035, according to estimates from the McKinsey Institute for Economic Mobility. This represents up to $5 trillion in enterprise value.

To address these tax implications, MetLife began offering a structured installment sale (SIS) solution about four years ago. The SIS solution is designed for business and property sales with gains of $500,000 or more. It allows owners to turn what would have been a lump-sum payment at closing into a tax-efficient stream of guaranteed payments over time.

How structured installment sales work

When small business owners are ready to sell, they may face taxes on the sale proceeds, including capital gains, net investment income and any applicable state taxes. For example, a dentist and business owner selling his dental practice in California for $2.5M could face over $425K in taxes if he decides to take the sale proceeds upfront. If he chooses an SIS, he could save around $188K in taxes. In addition to the potential tax benefits, an SIS gives owners more flexibility in recognizing capital gains and income by letting them decide how much, if any, of the sale proceeds to take up front with the remainder rolled into future guaranteed payments. benefits, an SIS gives owners more flexibility in recognizing capital gains and income by letting them decide how much, if any, of the sale proceeds to take up front with the remainder rolled into future guaranteed payments.

Once the buyer and seller agree to an SIS, the buyer transfers the future payment obligation to MetLife Assignment Company, Inc. and pays a single premium to fund it. The assignment company then purchases an annuity from Metropolitan Tower Life Insurance Company, a subsidiary of MetLife, Inc., which issues the scheduled payments to the seller over time. Payments are guaranteed, flexible, and can be deferred from one to 15 years from the transaction date and are payable up to 40 years.

It’s shifting the focus from just selling to being more strategic,” Vaswani said. “Many owners are approaching retirement and relying on the sale of their business to fund the next phase of their lives. SIS allows us to frame a sale not as a liquidity event, but as a retirement-income or an exit-income strategy — one that aligns timing, taxes and long-term cash flow.”

MetLife Sales Director Phil Petit says an SIS functions much like a pension, creating a predictable, recurring payment that can replace the income a business once generated. Service businesses like dental practices tend to be a natural fit for these sales, he said. They tend to be light on capital and heavy on intangibles, such as the practice’s client list and community goodwill.

However, an SIS must be in place before sales paperwork is signed or payments are made. Once a transaction is complete, it’s too late to change the tax implications.

A win‑win structure for business buyers and sellers

MetLife has been a market leader in the structured settlement business for more than 40 years, where much of its work has focused on providing ongoing payments related to personal injury and other legal settlements. For three consecutive years, the MetLife enterprise has ranked No. 1 in structured settlement sales, according to Life Insurance Marketing and Research Association (LIMRA) reported data.¹

Vaswani, Petit and the entire team work closely with business brokers, real estate brokers and CPAs to teach people about how structured installment sales fit into business succession and exit strategies. They play a critical role early in the transaction process, often educating sellers and buyers, coordinating with tax and legal advisers and helping ensure the deal structure complies with IRS requirements before proceeds change hands.

“We’re seeing increased interest, particularly as awareness grows around the coming wave of business transitions and as tax efficiency becomes central to exit planning,” Petit said. “Engagement from advisers and sellers has accelerated as more people realize the benefits of SIS.”

One of the strengths of the tool is its flexibility. Sellers aren’t required to structure the entire sale into future payments. Many take a portion of the proceeds up front and defer the remaining sale proceeds with an SIS, Vaswani said. In a real estate transaction, some sellers combine the SIS with reinvesting part of the proceeds into a new investment property through a 1031 exchange, creating another avenue for tax efficiency.

The SIS solution can also give buyers added flexibility at the bargaining table. By using an SIS, a buyer can structure a deal that offers sellers meaningful tax advantages and potentially a more attractive after-tax outcome. That can help bridge the gap between what buyers can pay and what sellers want to net from the sale.

Recently, Vaswani and Petit worked with a national restaurant chain franchisee who sold five locations to a single buyer. Each location was structured as its own business entity, and MetLife provided an SIS as part of the deal.

“That seller secures a stream of guaranteed income,” Vaswani said. “It provides predictable, long term cash flow that can support the next phase of their life with greater certainty and financial stability.”

Learn more about MetLife’s structured installment sale solution.