We are getting more calls from potential Exiting clients wanting to sell part of their business; two stores, one clinic, a manufacturing plant, etc. A big roadblock to this is that many times the books and records are not set up to reflect “subsidiary companies”. In addition, the CPA has been providing the client with a compilation of tax returns with no regard for analyzing the different profit centers of your business.
There is a good chance that the potential Entering party will need financing. Lenders typically want three years of tax returns plus year-to-date financials. How can this be overcome? Your CPA can go back and build three years of reviewed and YTD financials of the “subsidiary” you want to sell.
On a side note, what is the difference between a compilation, a review, and an audit? A CPA may provide a client with three distinct services involving financial statements. Each is designed to meet a different need.
A compilation is useful to small, privately-held entities that need help in preparing their financial statements. A review, on the other hand, maybe adequate for entities that must report their financial positions to third parties, such as creditors or regulatory agencies. Reviewed financial statements may also be useful to business owners who are not actively involved in managing their companies. An audit is a third and most extensive service. An audit is appropriate for entities that must offer a higher level of assurance to outside parties.
You would need to invest in at least a review to separate your company’s different parts. Also, it is very important that your internal accounting and record-keeping be corrected so that going forward your company is not continuing to co-mingle the profit centers.
What about your employees-both direct and indirect? Who stays with what entity? How are the marketing and advertising dollars allocated? An Entering party is looking to buy a company with solid systems and procedures. Will splitting your company affect costs and synergies? Conceivably. These variables need to be addressed before going to market.
If you are thinking about selling part of your business, a solid plan needs to be devised and implemented. If not, your efforts could be futile. I hope this short post gives you food for thought.
You have very good points to consider when selling only a portion of the business. A consistent theme to the articles… prepare in advance for the sale of a business if you want the most value. As always Chris offers great insights to achieving top dollar for his clients. Keep the valuable information coming.