When you sell a business, most of the assets — equipment, real estate, etc. — will transfer over to the new owner. But what happens to the cash when selling a business?
We get that question a lot, and we’re here to answer it. Keep reading to learn more.
Is cash an asset in a business sale?
Cash is not usually considered an asset in a business sale. This means that the seller is usually entitled to keep any petty cash or money in bank accounts. Cash equivalents like certificates of deposit, banker’s acceptances and commercial paper also belong to the seller.
Why is this the case?
Well, it helps to think of cash as a type of “reverse debt” in a business sale. When a business has debt, it’s the seller’s responsibility to pay off those debts before transferring the business. In cases where a business has both debt and cash in the bank, the cash is used to pay down any debts before the business is transferred.
Most mergers and acquisitions (M&A) sales are structured as “cash-free debt-free deals,” which means that the buyer is only buying the business — not the cash or debt. In these deals, it is the seller’s responsibility to pay off all debt and taxes, and they get to keep any cash left over afterward.
Exceptions: When cash is considered an asset in a business sale
Some businesses require physical cash to function on a day-to-day basis. Pawn shops, for example, function almost entirely based on cash. In those cases, the buyer may ask for cash to be transferred over as part of the sale.
Businesses with a split payment structure may also be sold with some cash, as buyers want to retain any cash deposits already put down by customers. For instance, a catering company may have clients who have already put down payments on upcoming events. A web design firm might have several first payments but not the second half. In both of those cases, the cash would go to the new owner.
Lion Business Brokers can help you sell your business
“What happens to cash when selling a business?” is only one of the many questions you’ll have as you go through this process, and we can answer them all. Lion Business Brokers will help you through the entire sale, from qualifying potential buyers to transitioning your business to its new owner. With Lion on your team, you can be sure you’re getting everything you deserve. Contact us today to get the process started.
What happens to the cash when selling a business?
When you sell a business, most of the assets — equipment, real estate, etc. — will transfer over to the new owner. But what happens to the cash when selling a business?
We get that question a lot, and we’re here to answer it. Keep reading to learn more.
Is cash an asset in a business sale?
Cash is not usually considered an asset in a business sale. This means that the seller is usually entitled to keep any petty cash or money in bank accounts. Cash equivalents like certificates of deposit, banker’s acceptances and commercial paper also belong to the seller.
Why is this the case?
Well, it helps to think of cash as a type of “reverse debt” in a business sale. When a business has debt, it’s the seller’s responsibility to pay off those debts before transferring the business. In cases where a business has both debt and cash in the bank, the cash is used to pay down any debts before the business is transferred.
Most mergers and acquisitions (M&A) sales are structured as “cash-free debt-free deals,” which means that the buyer is only buying the business — not the cash or debt. In these deals, it is the seller’s responsibility to pay off all debt and taxes, and they get to keep any cash left over afterward.
Exceptions: When cash is considered an asset in a business sale
Some businesses require physical cash to function on a day-to-day basis. Pawn shops, for example, function almost entirely based on cash. In those cases, the buyer may ask for cash to be transferred over as part of the sale.
Businesses with a split payment structure may also be sold with some cash, as buyers want to retain any cash deposits already put down by customers. For instance, a catering company may have clients who have already put down payments on upcoming events. A web design firm might have several first payments but not the second half. In both of those cases, the cash would go to the new owner.
Lion Business Brokers can help you sell your business
“What happens to cash when selling a business?” is only one of the many questions you’ll have as you go through this process, and we can answer them all. Lion Business Brokers will help you through the entire sale, from qualifying potential buyers to transitioning your business to its new owner. With Lion on your team, you can be sure you’re getting everything you deserve. Contact us today to get the process started.
Categories
Advisors
Archives