Asset Sales and Your Business


From stock sales to entity sales, there are several ways to make a profitable transaction by selling part or all of your business. One of the most popular methods is an asset sale.From stock sales to entity sales, there are several ways to make a profitable transaction by selling part or all of your business. One of the most popular methods is an asset sale. Sale of both large items (real estate) and smaller assets (equipment) can offer many benefits for both buyer and seller.

The Allied Business Group defines an asset sale as follows:

In an asset sale, the seller retains possession of the legal entity and the buyer purchases individual assets, such as equipment, fixtures, leaseholds, licenses, goodwill, trade secrets, trade names, telephone numbers, inventory, etc., of the company.

Allied also notes that asset sales usually do not involve cash, and long-term debt obligations often remain the seller’s responsibility. Accounts payable and accounts receivable can also be included in the sale.

If you decide that selling assets is the best way to earn money without selling your entire company, the folks at Dun & Bradstreet Credibility Corp. have a few recommendations. First, they advise sellers to eliminate unproductive or nonessential assets from the sale, since the buyer probably won’t pay extra for them. When it comes to valuable assets such as real estate, consider retaining those and eventually lowering the purchase price; you can still get the benefits of the asset (e.g., rental income) while keeping open the option of offering it to a wider variety of buyers in the future.

Although the initial sale of an asset can result in major gains for a business, sellers must be aware of later issues. Accredited business appraiser and certified business broker Edward L. Fixen notes: “From the seller’s perspective, gains realized from an asset sale may result in both capital gains and ordinary tax rates applying to portions of the gains and result in a higher tax liability. Additionally, equipment or other assets that have been depreciated will be subject to depreciation recapture.” Fixen does, however, explain that with careful negotiation and consultation with an attorney and accountant, both buyer and seller can come out on top.

If you’re thinking of putting a piece of your business on the market, talk to the right people who can inform you of both the benefits and consequences of a potential transaction.

 

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