The value of an ongoing operating business is driven by three things: expected cash flows, forecasted growth, and risk. It’s possible to divide the drivers into smaller categories, but all can fit under those three items. If your company may not be ongoing (for example, if it isn’t profitable), if it’s a holding company, or if it has non-operating assets, it may be necessary to value non-operating assets individually, which sometimes includes hiring equipment or real estate appraisers.

There are numerous alternatives which have different advantages and disadvantages. For owners who are most concerned about legacy, gifting to family, selling to management, and going ESOP are popular choices. Another option is to retain ownership and hire a president.  For those who want to maximize their payout, selling via an investment bank or to a competitor can be a great choice. Regardless of the path you take – you need skilled professionals in your corner. We can help you model out the various options, make the choice that’s best for you, and work towards structuring the transaction in a way that makes sense for you.

Sales of partnerships and sole proprietorships are always asset sales. For corporations (either C or S), generally buyers prefer asset sales and sellers prefer stock sales – this is mostly because an asset sale triggers tax at both the corporate and shareholder levels (for the seller) and gives a step-up in basis (for the buyer), whereas a stock sale triggers tax at the shareholder level only, but transfers the same basis to the buyer, which increases the buyer’s future tax liability. Some non-tax items to consider: stock sales generally transfer all contracts, agreements, insurance ratings, potential liabilities etc. while asset sales typically don’t. Asset sales are generally more complex and have higher transaction costs. In practice, most small-business transactions are structured as asset sales, so market prices have a built-in expectation of an asset sale.  If the deal is structured as a stock sale, the sale price would typically decrease to compensate for the transfer of some tax burden from the seller to the buyer. We can help you navigate both tax and non-tax implications and make sure the deal is structured and priced optimally for you.

Private equity firms can be very appealing to sellers, and for good reason – they’re experts at using synergies to maximize the profitability of your business, which allows them to often offer a better price than you can find elsewhere. At the same time, they’re experts at making deals, and they’ll make and structure the best deal they can – for themselves. We recommend always having knowledgeable professionals on your side to make sure you pick the right buyer and get the deal structured in a way that benefits you.

When buying a business, the purpose of due diligence is to make sure you fully understand the company in order to inform your analysis of whether or not to purchase it, and at what price. It’s important not only to thoroughly analyze the financial information, but also to understand customers, suppliers, employees, marketing, insurance, contracts, licenses, retirement liabilities, environmental issues, potential litigation, and many other items that will have a major impact on the success or failure of your future company. Sometimes due diligence kills deals (which is a good thing), but more often, it helps the buyer understand both how to succeed going forward and how to negotiate a fair price. When you’re seller – it’s important to know what to expect and be prepared for due diligence. The sooner you can start preparing your company for sale, the better.

It depends on how much risk you’re willing to tolerate, but typically, no. We recommend obtaining the books and having an accountant perform a thorough analysis.

If your company is profitable and your equipment is necessary for operations, that equipment will typically affect value to the degree that it’s expected to produce future cash flows. Remember that cash flows take into account future equipment expenditures. So, if your equipment is old and will need to be replaced soon, your expected future cash flows are reduced by the anticipated cost (discounted to present value) of any new equipment you’ll need to purchase. If your company isn’t profitable, or if a buyer won’t need the equipment and you want to sell it separately, it may be necessary to have an equipment appraisal performed to determine its value. We can refer you to a qualified equipment appraiser.