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FAQs About Assets Included in a Typical Business Sale

FAQs about Assets Included in a Typical Business Sale

 


Which assets are typically included in a business sale and what assets, if any, do I retain?

Our offering price for the assets of the business usually excludes cash and cash equivalents, accounts and notes receivable, refundable deposits, the corporate charter, the corporate minute and stock record books and the corporate seal, all of which the seller would retain.  If a seller doesn’t want to include a personal automobile or other personal assets, such as artwork, that are on the company books, those items would also be contained on the list of excluded assets.

The buyer is usually acquiring all assets except those retained by the seller (as detailed in the first paragraph above).  The acquired assets usually include all fixed assets (usually supported by a detailed list), all inventory, all supplies, tools, computers and related software, websites, all social media accounts used in connection with the Business, all permits, patents, trademarks, service marks, trade names (including but not limited to the name “Business Name” and all variations thereof), and all other intellectual property used in connection with the Business, all books, files, records, customer lists, telephone numbers and data pertaining to the Business, and all other assets used or useful in connection with the Business whether or not such assets are reflected on the seller’s financial statements.

The following issues merit special attention and cannot be covered by generalities: 1) a buyer needs to assume some third-party contracts the seller has; 2) there is work-in-progress as of the closing dates.

In most instances, the buyer assumes none of the liabilities of the seller as of the closing date.  The seller retains those liabilities and is responsible for paying them off from the proceeds of sale of the business.

 


I have a lot of cash and accounts receivable. Are they included in the sale of the business?

Cash is always retained by the seller. When we establish the value of a business, we assume the seller will retain accounts receivable and will also retain all liabilities. Occasionally, it makes sense to have the buyer assume the accounts receivable and accounts payable of the seller.  If that occurs, it usually results in an upward adjustment of the purchase price to the extent that accounts receivable exceeds accounts payable.

 


Will the buyer just take over my accounts payable and other debts owed by the business?

No, in most instances the seller retains all liabilities that exist as of the closing date and the debts are paid off by the seller from the proceeds of the sale.  See the answer to the previous question for the occasional exception.

 

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When selling my business, will I be selling my corporation?

Not usually.  In an asset sale, which is the typical structure of a small business sale, the buyer is acquiring the assets which are owned by the corporation, but the buyer is not acquiring the corporation itself.

There is an exception.  Occasionally, it makes sense to structure a transaction as a stock sale.  When that occurs, the buyer is acquiring the stock in your corporation and will assume all assets and liabilities of the corporation.  If a transaction is structured as a stock sale, you are selling the corporation.

 

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Will they buyer pay me an additional amount for all my inventory?

Not usually, but there is often a small adjustment to the purchase price based on the amount of inventory that exists as of the closing date versus the amount of inventory that was agreed to be included in the sale.

We usually set an offering price of a business based on its Seller Discretionary Earnings (cash flow).  Usually, the offering price exceeds the fair market value of the assets, so there is goodwill in the asking price.  Under that scenario, the seller has the responsibility to transfer to the buyer all the assets that were necessary to create the cash flow.

Inventory is obviously an asset that creates cash flow.  The seller should transfer to the buyer the reasonable amount of inventory that was historically necessary to produce the cash flow number from which the business value was determined.  For example, if the seller’s inventory was historically in the range of $75,000, the final agreement may state that the seller must have between $70,000 and $80,000 of inventory as of the closing date.  If there is a shortfall as of the closing date the purchase price would be adjusted downward, it there is an excess as of the closing date, the purchase price would be adjusted upward.

 


Do I have to pay off all the business debts at closing?

Yes, customarily.  As previously explained, in most instances, the seller retains all liabilities that exist as of the closing date and the debts are paid off by the seller from the proceeds of the business sale.   However, because transactions can be structured in different ways, there are exceptions.  For example, in a stock transaction, the buyer acquires the corporation and all of its assets and liabilities, so the seller does not pay off all debts at closing.

 

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If you have a question, send an email to jim@bizowneradvisors.com.

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FAQs about Business Buyers

FAQs about the Business Sale Process

FAQs about Facility Leases and Owned Real Estate

FAQs about Negotiating the Price Terms and Structure of Offers

FAQs about Due Diligence

FAQs about Seller Financing

FAQs about SBA Loans for Business Acquisitions

FAQs about the Business Sale Closing Process