Sell a Business as an Asset Sale: Business Broker Tips for Valuation.
When it comes to business sales, understanding how an asset sale works can make a significant difference in the outcome, especially if you're looking to buy a business or sell your business successfully. Whether you're a buyer aiming to minimise risk, or a seller planning a clean exit, the structure of the sale matters. And in many cases, an asset sale might be the best option.
So, what’s the secret to navigating an asset sale effectively, and how do you ensure the right price is achieved?
What Is an Asset Sale?
An asset sale is a type of business purchase where the buyer acquires selected assets, and sometimes specific liabilities, of a company, rather than buying the entire business entity. This differs from a share sale, where the buyer purchases ownership of the company itself.
In an asset sale, both buyer and seller agree on which assets are included, such as equipment, inventory, intellectual property, and goodwill, and which liabilities, if any, are being assumed. This flexibility is one reason asset sales are a popular structure in many industries.
How Industry Affects Business Valuation and Appraisal
Different industries have different valuation methods when it comes to asset sales. For instance, business valuation and appraisal for a transport company like a trucking firm will often be based on the value of its fleet, depots, and plant. These asset-heavy businesses are ideal candidates for this kind of transaction because tangible items can be valued more easily and transferred individually.
In contrast, service-based businesses, like consultancies, may rely more heavily on intangible assets like goodwill and customer relationships, making asset valuations more complex.
Why Buyers Often Prefer Asset Sales
When people look to buy a business, they often favour an asset sale for two reasons: control and reduced risk. Buyers can choose exactly what they want, such as customer contracts or specific equipment, without inheriting unwanted liabilities or legacy issues. This selective approach can also reduce legal risks and avoid surprises post-purchase.
Another major benefit is the ability to avoid unknown legal obligations. By not buying the entire company, buyers reduce their exposure to things like outstanding tax issues, employee disputes, or hidden debts. If you're wondering how to buy a business safely, an asset sale might be your answer.
What About Tax Implications?
While asset sales offer many advantages, they can come with tax consequences. Sellers may face higher tax liabilities due to depreciation recovery or GST obligations on certain assets. That's why it's essential to work closely with your accountant, lawyer, and business broker to structure the deal correctly.
If you're looking to sell a business, especially in a high-value industry, it's critical to understand how asset sales will impact your final proceeds after tax.
How to Value a Business for an Asset Sale
When you sell a company or prepare to sell my business, understanding how to value assets properly is key. Here's a simplified method:
Determine the fair market value of the assets – this includes stock, vehicles, equipment, accounts receivable, etc. External valuers are often used for accurate plant and equipment valuations.
Calculate the liabilities being assumed – such as loans, lease obligations, or accounts payable.
Subtract the liabilities from the total asset value – this gives you the Net Asset Value.
Adjust for goodwill and intangible assets – analyse recent sales of similar businesses to estimate this figure. Factors like size, industry, risk, and profitability all affect goodwill.
Example: ABC Trucking
Let’s take a practical example. Suppose you're planning to sell your business—ABC Trucking. Here’s how the valuation might look:
Assets:
Equipment: $1,000,000
Goodwill: $200,000
Accounts Receivable: $50,000
Total Assets: $1,250,000
Liabilities Assumed by Buyer:
Accounts Payable: $50,000
Truck Loans: $100,000
Total Liabilities: $150,000
Net Asset Value = $1,250,000 - $150,000 = $1,100,000
This figure becomes the foundation for your sale price.
Mistakes to Avoid When Valuing a Business
When preparing to sell a business, avoid these common pitfalls:
Ignoring depreciation or obsolescence of assets.
Overestimating goodwill without comparable sales.
Not accounting for contingent liabilities.
Using incorrect assumptions about industry trends.
A professional business sale broker or business broker can help you navigate this process. If you're located in New Zealand and want local expertise, business brokers Auckland can offer tailored advice for your region.
Final Thoughts
An asset sale can be a powerful tool for both buyers and sellers, but only if it’s structured correctly. From business valuation and appraisal to understanding tax and risk exposure, every detail matters. Whether you’re exploring how to buy a business, wondering how do you sell your business, or looking to sell a company quickly and cleanly, having the right advice makes all the difference.
Talk to a trusted business broker, accountant, and legal advisor to ensure you’re on the right track for a successful outcome.
