The balance of sale price is today one of the most strategic levers for buying or selling a business in Quebec. It is at the heart of many SME transactions, particularly in the service, manufacturing, distribution, and local trade sectors.
Little known to the general public, it nevertheless raises many questions:
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What is the exact definition of sales price balance?
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How to structure it?
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What are the tax impacts?
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Is it risky?
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Is it accepted by banks and lenders?
This guide answers all these questions in depth and gives you the concrete tools to structure a secure and viable transaction .
What is a sales price balance? (Simple and clear definition)
The balance of sale price , sometimes referred to simply as “balance of sale,” is a portion of the sale price of a business that the seller agrees to receive later , after the sale agreement has been signed.
In other words, the seller partially finances his own sale , often over a period of 1 to 5 years. The payment is therefore split : one part at closing, and another at maturity.
It is a seller's credit , with or without interest, which is based on a relationship of trust and a well-structured agreement.
Why use a sales price balance?
For the buyer:
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Reduces initial financing pressure
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Makes the project financeable , even with a limited down payment
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Demonstrates the seller's commitment to the success of the transfer
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Facilitates the negotiation of a better package with banks
For the seller:
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Allows you to close a sale faster
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Increases the price obtained in exchange for a deferred payment
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Offers potential tax benefits (capital gain averaging)
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Makes your business accessible to a wider pool of buyers
Detailed operation of a sales balance
The balance is entered in the purchase-sale contract and specifies:
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The deferred amount : generally between 10% and 40% of the sale price
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Payment term : often 12 to 60 months
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The interest rate (often 3 to 6%, sometimes 0%)
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Repayment method : fixed monthly payments, staggered payments or single payment
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The conditions for termination or penalty
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Guarantees granted to the seller (movable mortgage, personal guarantee, retention of title, etc.)
Numerical example of a sales price balance
Total sale price: $600,000
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Initial payment at signing: $400,000
(financed by the bank + down payment)
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Sales balance: $200,000 over 3 years
→ Annual payments of $66,666 + 4% interest
This represents a mixed arrangement , where the bank agrees to lend because the seller remains involved and the risk is shared.
Types of sales price scales
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Scale type |
Description |
|---|---|
|
Fixed |
Predetermined amount, repaid according to a defined schedule |
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Conditional (earn-out) |
Amount paid only if certain objectives are achieved (e.g. turnover or EBITDA) |
|
With interest |
The seller charges an annual interest rate on the unpaid balance |
|
No interest |
Used as an incentive to close quickly or offset a higher price |
|
Security by asset or mortgage |
The seller may seize certain assets in the event of default |
Taxation: How is the balance of sale price taxed?
For the seller:
The balance may allow for a spreading of the capital gain if:
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The business is sold by a natural person (not a corporation)
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The price is paid over more than a year
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The spreading clause is documented and complies with tax requirements
This allows taxable income to be spread over several years , thereby reducing the overall tax rate.
For the buyer:
Balance payments are not deductible . They are part of the total acquisition cost of the business, as if they had been paid in one lump sum.
Link between sales balance and bank financing
Commercial banks (Desjardins, BNC, RBC, etc.) highly value balances . Why?
Because they:
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Reduce overall risk
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Prove that the seller believes in the viability of his business
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Alleviate pressure on the buyer, increasing the chances of repayment
Institutions such as BDC , Investissement Québec , PME MTL , and SADCs often consider the balance as a form of quasi-capital in their risk calculation.
The Risks Associated with a Sales Balance (and How to Manage Them)
For the seller:
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Risk of default if the buyer does not pay
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Complexity of recovery if there are no guarantees
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Dependence on good company performance after departure
For the buyer:
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Repayment pressure in addition to bank obligations
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Termination clause in the event of breach
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Limits borrowing capacity for other projects
How to reduce them?
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Structure the clause in the contract well
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Require (or offer) reasonable guarantees
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Plan for a transition period with support
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Use an external appraisal to set a fair price
Timeline for integrating a balance into a transaction
|
Moment |
Key step |
|---|---|
|
3 to 6 months before the sale |
Open discussion on the seller's value and willingness |
|
2 to 3 months before |
Development of the financial package and estimation of EBITDA |
|
Signing of the LAW |
Inclusion of the balance clause with financing conditions |
|
Drafting the contract |
Precise definition of the balance, rate, duration, guarantees |
|
After the sale |
Implementation of payments according to the schedule |
Legal models available on trnsfr
Balance of Sale Price: What Lenders Look For
Lenders want to see:
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A balance documented in the offer
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A realistic timetable
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Performance-related conditions or guarantees
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A purchase price justified by a market valuation
Use our business valuation AI to justify your setup to institutions.
In summary: why use a sales price scale?
The sales price balance is:
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A smart complementary financing mechanism
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A proof of mutual trust between seller and buyer
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A powerful negotiation tool for a successful business takeover
But it must be legally framed , integrated into a balanced financial package , and based on a fair assessment .
