Selling Your Business Tip #1 - Net Working Capital
Net Working Capital is subject to highly varied interpretations and can often be a source of confusion and contention in the negotiation of a business sale. The slideshow below contains tips that if followed by the seller can make the process go more smoothy and make a material difference to the price received for the business.
The purchase price is often negotiated on a zero cash and zero debt basis, but not always, so be careful to define which current assets and liabilities are to be included and consider items, which you may not think of such as loans due from owners, officers, or employees, prepaid investment banker fees, customer deposits, deferred revenues and deferred taxes. If you’re not clear here expect that later, when the buyer has more leverage, the buyer will attempt to include everything possible to his/her advantage and for it to become a point of contention. This can cost the seller hundreds of thousands of dollars or more. Additionally, if the deal is not being negotiated on a zero cash basis and the business has a fair amount of cash, I recommend the seller make it clear that the purchase price includes only the level of cash and net working capital required to run the business over the course of the coming year (based on a historical analysis adjusted for extraordinary items and growth), and take the rest of the cash out.
The slideshow below contains a summary of some key recommendations that if followed by the seller can make the process go more smoothy and make a material difference to the price received for the business.
About Rob Pilz
A culture-oriented advisor, and the CFO at Summit Sciences. Summit, founded by Dana Friesen, a business development specialist, is a team of purpose-oriented executives, with broad skillsets in the areas of revenue growth, finance, planning, governance, and human and organizational performance. We're passionate about helping other leaders solve big problems and drive successful transformations in their organizations including high growth, IPO and M&A transactions.
Key words:
M&A, business sale,
