The following are some ideas that should be explored in order to maximize the amount of money that the vendors receive and to show the company in the best light:
- Take out all or part of the cash There may be no need to keep all the cash within the company. This could be distributed by way of dividend, payment into the owner’s pension fund or repayment of any directors’ loans. Alternatively if it’s more tax effective to do so, then the sale price can be inflated by the cash at bank figure so that in addition to the agreed purchase price, the purchaser pays “cash for cash”.
- Make sure NAV matches up with p/e, ROCE valuation Sometimes the Net Asset Value (NAV) is out of kilter with any normal valuation of the business, this can for example be because the company owns its premises. In that case it may be sensible to move the property into the director’s pension fund and lease the property back to the company; this will reduce the profitability but will transfer an asset with a good yield into the director’s pension. You should do the calculation to see if the benefit of extracting the property asset from the company exceeds the resulting reduction in the goodwill value because of the lower profit figure.
- Repay directors’ loans These should be repaid prior to a sale, if the cash is available. If it is not then they will normally be repaid out of/deducted from the sale proceeds at completion.
- Sell car to owner Very often the owner will have a car that they will want to keep after completion but which is owned by the company. Legally the company is entitled to keep the car, however if the owner wants to keep it, it needs to be either transferred before completion or specifically identified and excluded in the sales memorandum.
- Do a stock-take This should be done before putting the company on the market as this is the classic area in which purchasers chip away at the price. The vendor needs to clear out or write off any old or redundant stock so that the balance sheet is a true reflection of the company’s net worth.
- Clean up the balance sheetThe projected completion balance sheet should look clean and tidy and not contain any items which need explanation or which cause the purchaser to worry about the can of worms he is about to buy!
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