Selling part of a company
Discussion
Quick question, I know there are lots of tax issues from HMRC, but I a company which has essentially three companies internally, A, B and C. All trade as one company, but in three different business. I want to sell company A, but it is not completely clear from an accounting point of view what is going on, for instance staff tend to move from A-B a lot and some of costs are not easy to separate. There have been a few people look at company A, but it seems to confuse them that it is part of another greater.
Q: Is it worth splitting out A into a new company, so the perspective buyers can essentially just buy a fully trading limited company? Or, are my potential buyers just really not interested in company A after all and making excuses? Would this put you off as a potential buyer?
smele.
Q: Is it worth splitting out A into a new company, so the perspective buyers can essentially just buy a fully trading limited company? Or, are my potential buyers just really not interested in company A after all and making excuses? Would this put you off as a potential buyer?
smele.
If I were buying, I'd want each company completely ring-fenced, so I could see what revenues and costs were actually attributable to each business. I'd also want to knwo which employees were potentially going with the business, and which wouldn't.
At the monent, you have a 'business' (potentially) for sale for which all the above sound a bit murky. How can you value it? How can a buyer value it?
Hive it off into a newco. At least then you'll have an idea of whether or not it's the right bit to be selling. You might even find that it doesn't stand on its own feet...
At the monent, you have a 'business' (potentially) for sale for which all the above sound a bit murky. How can you value it? How can a buyer value it?
Hive it off into a newco. At least then you'll have an idea of whether or not it's the right bit to be selling. You might even find that it doesn't stand on its own feet...
OK, that pretty much answers my question. My accounts are pretty good, but I think nothing beats a separate company. Certainly make things easier for the incoming buyer if they can buy a packed business that is already set up and running.
I don't think it will cost too much to set up, bit of time and effort, but sounds like it will make things a lot more transparent.
Cheers.
I don't think it will cost too much to set up, bit of time and effort, but sounds like it will make things a lot more transparent.
Cheers.
Faced the same issue a few years back.
Up until 2007, the company was effectively a “brand” or trading unit within a larger entity. Work would come in and I’d then split the work requirements to other group divisions and receive cross charges upon which I’d add a margin when billing the clients plus any project management fees.
We were then approached by a company who wanted to buy the division.
This meant that we had to show the financial performance separate to the rest of the group, which practically was not an issue but was tricky when it came to looking at profits. The work had contributed to the group profits and the margins covered the divisional operational costs only. So when we retrospectively separated out the billings, it showed that we had traded for three and a half years at best, breaking even, but mainly making a loss, even though the work was highly profitable to the group as a whole.
This was explained to the company looking to purchase and they understood the situation. They were looking at potential rather than history. There were no debts or skeletons so the investment (price) was based upon “what was needed” rather than “what it was worth”. A valuation in the normal manner would have yielded zero, which was not the case at all. A figure was agreed and due diligence began.
The firm carrying out the due diligence didn’t get it though and reported back to the buyer’s head office in Paris that we were worth nothing and the deal collapsed leaving us with £25k in legal and accountancy fees. Nice!
The annoying thing was that we could have easily massaged the figures – legally – to show the division as making massive profits but we considered this unwise and unfair and thought it best to be straight from the off!
So, in answer to your question, I would ask of the buyer, what their intention is. What are they looking to buy and why. You then have the flexibility to package something that suits.
HTH
Up until 2007, the company was effectively a “brand” or trading unit within a larger entity. Work would come in and I’d then split the work requirements to other group divisions and receive cross charges upon which I’d add a margin when billing the clients plus any project management fees.
We were then approached by a company who wanted to buy the division.
This meant that we had to show the financial performance separate to the rest of the group, which practically was not an issue but was tricky when it came to looking at profits. The work had contributed to the group profits and the margins covered the divisional operational costs only. So when we retrospectively separated out the billings, it showed that we had traded for three and a half years at best, breaking even, but mainly making a loss, even though the work was highly profitable to the group as a whole.
This was explained to the company looking to purchase and they understood the situation. They were looking at potential rather than history. There were no debts or skeletons so the investment (price) was based upon “what was needed” rather than “what it was worth”. A valuation in the normal manner would have yielded zero, which was not the case at all. A figure was agreed and due diligence began.
The firm carrying out the due diligence didn’t get it though and reported back to the buyer’s head office in Paris that we were worth nothing and the deal collapsed leaving us with £25k in legal and accountancy fees. Nice!
The annoying thing was that we could have easily massaged the figures – legally – to show the division as making massive profits but we considered this unwise and unfair and thought it best to be straight from the off!
So, in answer to your question, I would ask of the buyer, what their intention is. What are they looking to buy and why. You then have the flexibility to package something that suits.
HTH
Its really only a small business that I am selling off, 300K, with profits circa 200K. So far most of the people I have had take an interest seem more interested in my other business's and just want something more stand alone. Suppose I never really looked at it from the buyers point of view. Only real hassle I can see is the lease, as the landlord is real pain and does not want to put it in the Ltd company name.
Gassing Station | Business | Top of Page | What's New | My Stuff