Business sales – attributes and barriers – trading with associated companies

by Trevor Plowman

My fifth blog in this series on business sales examines potential trading with associated companies and how it could impact on its marketability and the sales process.

Trading and non-commercial trading with associated companies

If your business operations contain transactions with other business operations under your control it is important to be able to demonstrate a clear distinction between the different operations when negotiating a sale.

Arm’s length transactions between the different businesses will need to be quantified and an agreement may need to be reached about ongoing activity between the businesses after a sale has been completed.  This may be important not only for your potential buyer but also for the future viability of your remaining businesses.

In some instances transactions may occur at non-commercial rates or may not even be recorded.  For example, goods or services may be transferred at cost rather than at market rates, management time may be allocated on a percentage basis rather than at contracted consultancy rates, assets may be shared or occasionally used with no recharge or minimal cost allocation.

If you are selling all your business interests in one transaction these issues may present less of a challenge, however they will need to be understood to ensure buyer can understand the business and value it appropriately.  If you are selling only part of your overall business operation it is unlikely that these arrangements will be able to continue after a sale, or if they are to continue they will need to be carefully documented.

If your business has any form of interaction with associated companies, we would be happy to discuss the potential issues with you to ensure you are as prepared as possible for any future sale.

This blog forms part of a comprehensive whitepaper on ‘Selling a Business‘ written by the Corporate Finance team at Ensors.

Author

Trevor Plowman

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