What’s Included in the Price?

When considering an offer to buy your business, it's crucial to ask, "What's included in the price?" An offer may seem appealing at first glance, but without knowing exactly what the buyer intends to purchase, it's difficult to assess its true value.

Ideally, a seller may receive multiple offers. However, with many negotiable variables, comparing and determining the best offer can be challenging. An experienced M&A professional can assist in guiding the offer process, analyzing the details of each offer, and outlining their pros and cons, enabling the seller to make an informed decision.

While each business sale is unique, there are general guidelines to bear in mind when evaluating offers.

1. Fixed Assets

The price should encompass any fixed assets like equipment, furniture, computers, vehicles, patents, trademarks, and service marks (intangibles). Inventory must also be included, with its value being accurate – usually the lower of cost or fair market value. Sellers need to ensure that all inventory is current and usable or sellable by a new owner to maximize its price.

2. Working Capital

Working capital, which is the current assets minus the current liabilities, is a negotiable item. It includes inventory, normalized cash, accounts receivable, prepaid expenses, accounts payable, and accrued liabilities. Notes receivable, excess cash, securities, and notes payable are usually excluded.

3. Real Estate

Valuing and selling real estate can complicate a sale, so it's crucial to determine its fair market value and whether it's part of the offered price. The owner's vehicle may be part of the sale, but in most cases, it does not add value to the business and should be excluded from the sale.

4. Phantom Assets

These are items that may not have a physical component or appear on the balance sheet but contribute to the business's value. When evaluating an offer, it's important to consider potential value assigned to phantom assets, such as a capable management team, a diverse customer base, long-term customers or vendor contracts, recurring revenues, efficient delivery systems, or an excellent reputation.

Evaluating even one offer, let alone multiple offers, can be overwhelming. Your M&A advisor can help break down the details and guide you through the process to make your final decision with confidence.

For more information or advice on a business for sale, you can contact JB Mason at 913.648.0185.