Monthly Archives: March 2014

Understanding Working Capital in a Transaction

Handling working capital in a transaction is an issue that is often difficult for sellers of middle market companies to come to grips with.  While grossly oversimplified, in most cases, the practical definition of working capital for transactional purposes usually means the amount of the company's accounts receivable less the amount of the company's accounts payable.  (Other items can be important from company to company including inventory, accrued compensation, and other amounts, but in most Read More [...]

The Value of Having a Management Team in Place for a Sale

Recent data suggests that ensuring that your company has adequate management in place that will continue downstream of a sale transaction can be worth a significant amount of money to you as a seller. GF Data, one of the firms that aggregates data on private equity transactions in the middle market, recently published an article entitled "Where have all the Sellers Gone?"  As part of their analysis of 2013 data, the firm analyzed 50 transactions where PE firms acquired companies from individual/family Read More [...]

Buyers Are All About Metrics

Last week, Middle Market Executive published an article I wrote entitled Knowing Your Financial Metrics Can Increase Your Company's Value to Buyers (and Make It Easier to Manage Along the Way). While I won't repeat the whole article here, I wanted to draw your attention to a couple of key points. First, while many middle market owners may feel comfortable managing their companies by "gut feel," buyers expect and want more.  Inevitably, buyers (whether financial or strategic) will feel compelled Read More [...]

Consider an S Corp Election

A surprising number of my clients continue to be organized as C corporations, and have not taken advantage of making an S Corp election.  This can be a potentially costly oversight if the company's owners are looking to sell at some point in the future, particularly since in many cases, there are no significant disadvantages to making the S Corp election. The key reason to make an S Corp election is to avoid the double taxation that is inherent in the C Corp structure.  When a C Corp makes money, Read More [...]

Tip for Sellers: Adopt an Appropriate Revenue Recognition Policy

Although "revenue recognition" sounds like an arcane topic (and it is), selling business owners should beware, as the timing of costs and revenues repeatedly causes troubles for middle market transactions.  Because of the complexity of the accounting rules around this topic, many deals struggle to get through economic due diligence due to sellers' lack of understanding of this issue.  The result is often that after an external review, buyer's accountants appropriately (but unexpectedly to the seller) Read More [...]