 4 Ways to Unlock Cash in Working Capital
Working capital management is just as important as revenue growth and profitability when creating value in your company as you prepare to sell it.
Most company owners will agree on this: landing a big order or project is fun; balance sheet management is anything but. That's why company owners often leave managing receivables and payables up to the accountants. This is a mistake.
When companies are growing, letting receivables run can lead to a cash crunch that can derail things. Moreover, a tremendous amount of cash (and consequently value) is locked in your working capital. Unlocking it means more free cash flow for debt repayment, reinvestment, or issuing dividends. In addition, potential buyers notice companies that generate free cash flow, and pay a valuation premium for these companies.
Clearly, unlocking cash is important, but how can you do it? Here's some tips:
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Ask the Experts
Question:
I am selling my business. The buyer's tax adviser says that most of the purchase price is goodwill and that we will both report to the IRS that goodwill was sold and purchased. He also says this is good for me because I get capital gain treatment for goodwill. So I went online and found IRS Publication 544, which supposedly tells what a capital asset is. I can't understand it. It has a list of what a capital asset is but goodwill is not in the list. It then has a section on "Section 197 intangibles," which lists goodwill, but it does not say that goodwill is a capital asset.
Answer:
This is an excerpt from IRS Publication 544, Sales and Other Dispositions of Assets, Section 2, under "Sale of a Business":
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
Dispositions of Intangible Property
Intangible property is any personal property that has value but cannot be seen or touched. It includes such items as patents, copyrights, and the goodwill value of a business.
Read Complete Information on IRS Site Here
Copy of Asset Allocation Report Form 8594
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