Will My Business’s Assets Increase the Value of my Business?
When selling your business, the question of whether or not you can get paid for your assets is one that comes up a lot. The answer is rarely what the business owner wants to hear. There are sound reasons for this. Understanding how businesses are priced can help an owner with decisions on how to allocate resources for assets; especially if they are planning to sell in the near future.
The answer to the question of “what about my stuff” is, unfortunately in many cases for the buyer, simply this: the buyer needs the assets to make the deal work and make money; they are a requirement to make the deal work. So usually, the business owner doesn’t realize any additional financial consideration for them.
Assets could include vehicles, heavy equipment, etc. As an owner, it’s also important to disclose what assets of the business are leased or rented and therefore quite likely, someone else’s “stuff” – not part of the deal.
There is one way to get paid for the assets of a business, it’s what is often called an “Assets-in-Place” sale. An Assets-in-Place sale essentially means that the business isn’t cash flowing, but there are worthwhile assets that a new owner could build a new business upon and hopefully make their money back.
Although an Assets-in-Place sale is a type of an asset sale, it should not be confused with the deal structure options of an asset or a stock sale.
Owners Often “Over-Assetize”
Some businesses may have more assets than are really required to operate profitably. While this can be great for an owner who needs to make a purchase for tax reasons before a year ends, it doesn’t help a valuation.
In these cases, it could make sense to sell off non-essential assets before taking a business to market, or right-size the assets that are essential.
A business should only have the assets needed to make the money it’s being sold for, and no more.
There’s a Difference Between Inventory and Assets
The good news is that inventory is totally different than assets. And because inventory is different than assets, owners can get paid up to the wholesale value of their inventory. Nonetheless, they should have a “normal” amount of inventory. The business should be marketed to buyers and transferred with the amount of inventory that is required to deliver the profit expected in a normal sales cycle.
Therefore, the “can of beans is different than the shelf it sits on.”
An owner will be paid for the beans, but not the shelf.
Owners should pay attention to the investments they make in assets. Buyers purchase businesses for cash flow and not the assets of the businesses. Being judicious in investing in assets will enable an owner to have the most options available for exit. Discussing asset investment with advisors such as accountants and other intermediaries – including a knowledgeable business broker –can help with decisions regarding depreciation and asset investment.