What Actually Goes in Your Pocket After a Business Sale?
The sale price your business attracts is often very different from the amount that actually goes in your pocket following a business sale. The following model is a helpful tool to help you understand how a typical asset sale functions.
In most cases, when buyers buy businesses, they are buying the assets (tangible and intangible) of the business free and clear. However, it is very common for sellers, in particular, to misunderstand this important aspect of deal making and how it may affect their future sale. The model below demonstrates how the seller’s balance sheet and standard transaction fees influence the amount of net proceeds earned from a business sale.
Net Proceeds to Seller
Sale Price Add/Subtract:Net working capital and long term liabilities:
$1,100,000
Current assets and "other" receivables
+$371,195
(Current liabilities)
-$200,017
(Long term liabilities)
-$560,277
(balance and residual payoffs for leases)
$0
Proceeds to Seller, before taxes and fees
$710,901
(Intermediary/Facilitation Fee)
-varies
(Legal/Act/Tax Fee)
-varies
Estimated Net Proceeds to Seller
$710,901
This basic model does not encapsulate every business sale or how every offer is presented to the seller. It does generally represent how the majority of small business owners walk away from a business sale. When both buyers and sellers do not clearly understand this basic model, they often waste thousands of dollars and hours of time before realizing they are miles apart on the basic terms of the deal.
For more information on preparing for a business sale, please submit the contact form below.
