Understanding What the Owner Gets After Selling a Business

A successful business owner named Alex M. (name changed for confidentiality purposes) was pondering over how to retire and live off his savings.

When he consulted his acquaintances who had previously sold their businesses, he assumed that the sale price was the only benefit the seller received once the deal was finalized. However, Alex was fortunate to find a broker who informed him that he would also receive working capital after the sale.

Alex owned a construction company that had numerous contracts, resulting in accounts receivable of approximately $2,000,000. Consequently, the profit from the sale of his company was $1.5 million higher than the selling price. This greatly improved his retirement prospects.

Seller Obligations in a Business Sale

When it comes to selling a business, it is crucial to understand how the deal should be structured. The standard deal structure is cash-free/debt-free. This means that the seller of the business is responsible for paying all of the company's obligations until he transfers it to another owner. The seller's obligations entail paying off the balance on credit cards and lines of credit before closing the transaction. Additionally, the seller must pay accounts payable to suppliers, which may have occurred during his management of the company.

Another obligation is to pay off all loan debts, including loans for equipment. Moreover, the seller must transfer all advance payments from customers to the buyer. The seller cannot keep this money for himself, since the work for which the advance was paid will be done after the transaction is closed. The seller must also pay liabilities under legal claims, including decisions that will be made in the future.

The seller is required to pay wages to employees for the entire period of ownership of the company that has not been paid, along with taxes related to wages. Furthermore, the seller must make payments to employee pension and insurance funds. Other taxes, such as sales tax and income tax, must be paid before closing the deal.

Typically, the seller does not pay off his debts until the deal is closed. Therefore, these obligations are paid on the day the transaction is closed in cash owed to the seller. The seller himself is the last in line to receive them. How much the owner receives after the sale, you can read in our article.

What the Seller Keeps for Themselves After a Business Sale

Now, let's consider what the owner retains for himself. The list includes account balances, accounts receivable, loans for which the debt has been repaid, deposits with service providers, future proceeds from lawsuits and insured events initiated before the sale of the company, refunds for overpaid taxes during the management period before the closing day, bonuses paid by suppliers, and personal belongings located on the premises of the enterprise but not indicated in the list of transferred assets.

The budget for the company's acquisition is the amount paid on the day of the closing, plus funds for replenishment of working capital, which must be deposited within a few weeks after the close of the transaction.

In conclusion, it is critical to comprehend the deal's structure and the seller's obligations when selling a business. The owner can make sure he benefits the most from the sale by doing this. It is also crucial to consider the assets the owner keeps for himself, including account balances, accounts receivable, and bonuses received from suppliers. In the end, a business owner who comprehends the complexities of the transaction and seeks professional guidance from a broker may find selling a business to be a lucrative opportunity.

The main things to remember:

Как структурировать сделку 3

  • Up until the business is transferred to the new owner, the seller of the business is liable for all company debts.
  • On the day of the closing, the seller can anticipate receiving the sale price owed to them in cash as well as any sums due for working capital.
  • The seller keeps account balances, accounts receivable, deposits, future proceeds from lawsuits and insured events, refunds for overpaid taxes, bonuses paid by suppliers, and personal belongings located on the premises of the enterprise, but not indicated in the list of transferred assets.
  • To avoid mistakes when selling a business, read our article. 

 

Read What Our Clients Say (Google Reviews)

  • Absolutely thrilled with my experience at Florida Buy and Sell and especially working with Alyona! She was professional, courteous, and incredibly knowledgeable, making my business buying transaction smooth and hassle-free. Their expertise and dedication to customer satisfaction really stand out in the industry. Highly recommend for anyone looking to buy or sell business with confidence. A true gem in Florida’s market!
  • I enjoyed working with Alyona Safonova as a business broker, and I cannot recommend her highly enough! Alyona is a true professional with a deep understanding of the market and a talent for finding the perfect match for her clients. She guided me through the entire process with expertise and patience, always available to answer my questions and address my concerns. Her dedication and hard work resulted in a successful sale that exceeded my expectations. If you're looking for a knowledgeable, reliable, and results-driven business broker, look no further than Alyona Safonova! 💼👍
  • I've been dealing with Florida Buy and Sell in my professional capacity as an immigration attorney assisting foreign individuals in buying businesses in the U.S. I can attest to the high degree of diligence displayed by Florida Buy and Sell in all business transactions I witnessed. My primary point of contact, broker Alyona Safonova, has always been responsive to my clients' inquiries and meticulously collected all financial documents necessary for the effective transaction.