In last month’s article we discussed two key factors in preparing your business for sale:
— How indispensable is the founder/ owner?
— General condition of equipment & facilities
This month we’ll explore other key factors, including the extent to which a seller can improve his/her net proceeds from the business sale by reducing the amount of debt and working capital required to operate the business. Buyers will generally not pay much, if anything, for obsolete or dated inventory. A seller is almost always better off to convert as much of these items to cash before the sale.
Similarly, most buyers will not pay 100 cents on the dollar for Accounts Receivable over 90 days past due. These accounts tend to be even more difficult to collect after there’s been a change in ownership. Here again, the seller is usually better off stepping up his/her collection efforts prior to the sale.
While it might seem like having large amounts of current inventory and accounts receivable which will convey on sale would be a good thing, in reality the leaner the current owner can successfully run the business, the greater his cash flow and the higher the purchase price.
Finally, it usually pays the seller to clean up as much corporate debt as possible prior to closing if only because it reduces the amount that must be paid off at closing from the sale proceeds before the owner can rightfully claim the remainder.
Of course, every seller’s situation is different, and you would be well advised to consult your personal tax advisor as well as your personal financial planner before making any final decisions in this regard.
If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a complimentary consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com
By: Mike Ertel, Transworld M&A Advisors