Just One Slice
At Sunbelt, we often work with Sellers who are interested in selling an isolated business unit, as opposed to their entire company. Diverse companies such as these may have fundamentally different products/services with various fictitious names – which all roll into a single corporate tax return. In many cases, a Seller wishes to target only one of these business units for sale. It is possible to isolate and sell only a slice of the corporate pie?
Selling a subset of a corporate entity is indeed possible, however, a Seller must consider several things to avoid problems with the approach.
Make a Clean Cut
First and foremost, the business targeted for sale must have its own isolated financials statements. After a buyer searches for a business for sale near me and target your business, the Buyer will want to see P&L statements and balance sheets for the isolated business under consideration. For this reason, it is critically important that all revenues, COGS, and expenses are segmented by the various business units which comprise the overall corporate picture.
Secondly, a Seller should maintain separate business bank accounts for each discrete business unit. In doing so, it’s much easier for a Buyer to conduct due diligence when the time comes. Imagine a Buyer reviewing bank where the funds in and out of the bank account are in excess of those related to the business in consideration. In such a case, it would be very difficult for a Buyer to successfully conduct their due diligence process effectively.
Finally, a Seller should think about the interdependencies of the various business units which comprise the corporation at large. Are all business units run out of a single physical location? What happens if the Buyer of a targeted business unit wants to take over the location, and yet the Seller’s remaining business units are also dependent on that space? The interdependencies between the business units should be minimized to every extent possible. In fact, a Seller considering the sale of a single business unit should strive to structure the targeted business unit in as modular a way as possible. In this way, the sale of an isolated business unit will require far less ‘surgical work’ to separate its existence from the remainder of the business.
Safe for Consumption
It is also important to note that the factors above are important not only to a Buyer, but to their SBA lender. It’s important to know that when you are putting up your local business for sale California Buyers mostly look to the SBA for funding their purchase; and SBA lenders are equally concerned about validating the financials of the business in question. To the extent the lender can validate the isolated P&Ls and balance sheet of the business unit in question, it’s far easier for the lender to approve a Buyer’s loan application. Note also that during due diligence, the SBA will likely require the Seller to expose the entire corporate financials – beyond those isolated financials for the business unit being sold.
If you’re considering selling a business unit rather than the entire company, Sunbelt can help. Give us a call or send an email for a free consultation about planning your business for sale bay area.
Jordan Zweigoron is a Senior Advisor with Sunbelt Business Brokers. He can be reached at (408) 436-1900 or at [email protected]. Or connect with Jordan on LinkedIn.
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