The Benefits of Disposing of Idle Assets Prior to Selling Your Business
I felt the annual urge to spring clean around our home. “Stuff” had slowly accumulated in the basement, garage, attic and yard as the winter months rolled by and it’s time to clean up and get ready to enjoy the much too short spring and summer season. My wife and I will “discuss” which items to keep and rearrange, and identify those that have lost their intended usefulness and must be discarded. Invariably, items remain from year to year that we disagree about, one of us lobbying to keep them for sentimental or other reasons (i.e., that seldom-if-ever used garden tool that looked really cool when our neighbor bought one, or our son’s rusting bike he rode at age nine even though he’s currently 6’6” and in college).
This spring cleaning discussion intensifies when done in anticipation of selling a house. Often the result is a garage sale (or trip to the scrap/recycling yard) to unclutter the home and make it more presentable and attractive to potential buyers. These buyers usually don’t see the sentimentality of such items or the value in purchasing them.
This home analogy also applies to owners contemplating a sale of their business. We advise many companies in preparation for sale to literally walk through their offices and facilities and look for assets that may not be useful to a future owner, or are not currently in use or necessary to operate the business. In essence - a pre-sale spring cleanup. Examples of these items include nonfunctioning machinery and equipment, obsolete or slow moving inventory, and on premise personal/hobby and sentimental items. In some instances, the presence of these items may be detrimental to the company’s value, and the Seller will not get full value for these items once the business is acquired.
Business Spring Cleaning Items:
If a purchaser proposes a stock purchase, all the assets of the company will transfer unless specifically excluded. Even in an asset purchase structure, buyers normally include all of the items in the facilities unless otherwise excepted. Examples include the 75-year-old desk being used by the founding owner’s grandson, various plaques and awards accumulated by the company over the years, family pictures and paintings, a restored classic 1955 Chevy used as an advertising vehicle, and an extensive and expensive sports memorabilia collection located in the business lobby. We have encountered fathers whose business accommodates manufacturing, supplying, and funding a racing team for his salesman son (company logo on the car). The selling owner must identify these items and work with advisors to verify whether they will or will not be necessary or valuable as part of the business under new ownership. Putting a value on sentimental items is difficult at best, and often impossible. It’s best to determine how these items will be treated well in advance of discussions with a purchaser.
Performing this cleanup function may add to the business’ “curb appeal,” avoid conflicts over nonessential items, put additional cash in the sellers’ pockets, and improve the prospect of a successful sale process. Much like the unused garden tool in my garage, converting nonproductive assets to cash is never a bad thing.
(Note: Goodyear recently sold at auction a set of four stuffed squirrels in classic 19th century boxing poses for $70,000).
© Copyrighted by EdgePoint. John Herubin can be reached at 216-342-5865 or via email at firstname.lastname@example.org.