Different Deal Structures When Selling A Services & Properties Business
When selling a services & properties business, you can choose from a wide variety of deal structures. In fact, these deal structures will be proposed by your potential buyers. Typically, a business sale consists of various elements, such as seller notes, cash at choice, non-competes, earn-outs, and escrow accounts etc. Read on to find out more about the characteristics of a selling company that has a direct impact on the selling price and the terms.
Annual Revenue of Your Company
This is a determining factor of how much your potential acquirer will pay for your firm and how much will be available in cash at the time of closing. If your contractually recurring revenue makes the 80% of your annual income, you are in the strong position to command both a deal heavily weighted in cash at closing and a premium price. Conversely, if your annual revenue doesn’t have contractually recurring income and it heavily relies on new sales from new customers, then your selling price will be lower.
Management Depth of Your Company
If your firm has a wider gap in its management depth and capabilities, it raises a red flag for buyers. To sell your services & properties business on a higher sale price, make sure the customer and supplier relationships on your company are decentralized. This will also translate into a higher percentage of transaction value at the time of closing.
A portion of the sale price is held by a third-party escrow agent who gives instructions on how the money can be released to the seller. These accounts are required by the acquirer where they perceive the risk of a future event like an outstanding lawsuit. If there are unresolved issues, the funds are held for several years.
Stock Sale Vs. Asset Sale
Most big companies have a clear rule that they will do only asset acquisition as opposed to purchasing of the stock of the company they are willing to buy. There are some good benefits to do this. For example, when a company buys the stock you receive both known and unknown liabilities and all assets of that company. If you look at the main reasons acquirers have escrow accounts, you will find out that many of the reasons apply for wanting to go for asset acquisition. In other words, potential buyers are only buying certain assets, while remaining corporate shell is still under the ownership of the previous owner. The previous owner has all the liabilities that are not specifically identified in the asset purchase contract. From the tax perspective, asset sale is a bad idea because it is taxed as ordinary income at the usual corporate tax rate. However, if you have a company that doesn’t have the escrow liability, a stock sale may be a good option for you. It is strongly advised to analyze both asset acquisition and stock sale in order to determine which option is good for selling your services & properties business.
On the whole, there are some other deal structures that you can use when selling your services & properties business. The qualified business broker to know more about all types of deal structures that you can use to sell your company.