How targeted balance sheet adjustments can increase the value of a company

How targe­ted balan­ce sheet adjus­t­ments can increase the value of a company

For medium-sized family businesses, in contrast to groups, balan­ce sheet policy ambiti­ons consist prima­ri­ly of maintai­ning finan­cial resour­ces in the business and regular­ly optimi­sing the tax burden. Our KERN partner Thomas Dörr explains how the value of your compa­ny can be increased with targe­ted balan­ce sheet adjustments.

Those who have the duty to pay taxes also have the right to save taxes”.

With this sentence, no less a person than former Chancell­or Helmut Schmidt gave his blessing to prudent business­men to exhaust the possi­bi­li­ties of tax law within the given frame­work. So!

Diffe­rent with the sale of a company

However, if the compa­ny is to be sold - for examp­le on the occasi­on of a planned compa­ny succes­si­on - other princi­ples apply. In this case, the values of the compa­ny must be presen­ted trans­par­ent­ly. This princi­ple also enjoys the highest priori­ty with regard to the attrac­ti­ve­ness of the compa­ny to poten­ti­al inves­tors. This appli­es above all to frequent­ly occur­ring hidden reser­ves in the balan­ce sheet. If possi­ble, these should not remain silent. This princi­ple remains correct even if the lifting of hidden reser­ves results in a higher tax burden in the short term.

Most important goal: the separa­ti­on of the areas between the former share­hol­der and the compa­ny to be divested 

In princi­ple, the aim is to reduce the balan­ce sheet total as much as possi­ble through a balan­ce sheet adjus­t­ment and to dissol­ve tax optimi­sa­ti­ons and pensi­on provi­si­ons. All balan­ce sheet items that are not clear­ly attri­bu­ta­ble to the compa­ny should leave the balan­ce sheet. On the assets side, this includes vehic­les and, somewhat less frequent­ly, real estate, provi­ded they are also used priva­te­ly. On the liabi­li­ties side, a pensi­on provi­si­on of the compa­ny owner is often the largest item to be adjus­ted. This should also leave the balan­ce sheet by way of a reinsu­rance soluti­on. As far as possi­ble, share­hol­der loans should also be repaid or repla­ced at an early stage. The overri­ding goal is to clear­ly separa­te the areas of the former share­hol­ders and the compa­ny to be sold in the run-up to the sale process. As a rule, this positi­ve side effect alone impro­ves the balan­ce sheet ratios.

Whether assets or liabi­li­ties - Carry out market valuations

Is the Calcu­la­te enter­pri­se valueAll assets must be checked for their reali­stic market value. Has the value of receiv­a­bles been adjus­ted appro­pria­te­ly? Have invent­ories and stocks been valued reali­sti­cal­ly or has accoun­ting leeway been used? In the run-up to the sale of a business it is general­ly important to keep invent­ories low and to clear them of old stock and slow-moving items. Fixed assets should also be checked for plausi­ble market values or repla­ce­ment values. In cases of doubt, an exter­nal valua­ti­on should be obtai­ned. It cannot be ruled out that this may reveal hidden reser­ves as well as encum­bran­ces. On the liabi­li­ties side, provi­si­ons must be checked for adequacy. For examp­le, are warran­ty provi­si­ons reali­stic in the amount shown in the balan­ce sheet? Is the use of savings provi­si­ons actual­ly planned? In view of the inten­ded sale, all major invest­ments should be defer­red anyway or the invest­ment decis­i­on left to the new owner. In conser­va­tively managed, profi­ta­ble family businesses, hidden reser­ves are often found in the accoun­ting of provisions.

The last three finan­cial years are very important for the balan­ce sheet adjustment

The entre­pre­neur should defini­te­ly start with the targe­ted balan­ce sheet adjus­t­ment in good time. In the case of a compa­ny sale, the last three finan­cial years are of parti­cu­lar importance. They are important for the Due Diligence by the acqui­rer. During this period, no signi­fi­cant long-term binding contracts should be entered into, which would burden the profit and loss accounts after the sale of the compa­ny. The depar­tu­re from tax-optimi­sed, conser­va­ti­ve accoun­ting may result in higher income taxes in these and possi­bly previous business years. At the same time, however, both the opera­ting result and the key business figures of the compa­ny impro­ve. The effect on the value of the compa­ny and thus the possi­ble sale price is usual­ly higher than the possi­ble tax effect.

The last three business years are also in the foreground in the analy­sis of the past within the frame­work of the business valua­ti­on. They contri­bu­te signi­fi­cant­ly to the plausi­bi­li­ty of the target figures. Since the Compa­ny sale valua­ti­on is nothing more than the “cash valua­ti­on” of the planned results, the purcha­se price that can be achie­ved later increa­ses. The adjus­t­ment of the balan­ce sheet helps to parti­al­ly close the gap between the buyer’s and seller’s purcha­se price expectations.

Natür­lich kann der Verkäu­fer die Analy­se und die Aufde­ckung der Bilanz­re­ser­ven dem Unter­neh­mens­be­wer­ter oder Inves­tor überlas­sen. Wie überall existiert aber auch im Markt für Corpo­ra­te transac­tions ein schar­fer Wettbe­werb. Daher muss der erste Blick auf die Zahlen stimmen, um die richti­gen Inves­to­ren anzulo­cken und ein nachhal­ti­ges Inter­es­se am eigenen Unter­neh­men zu erzeu­gen. Zur Optimie­rung der Kaufpreis­kon­di­tio­nen gilt erfah­rungs­ge­mäß der Satz: Tue Gutes und rede darüber!

For further questi­ons on the topic of targe­ted balan­ce sheet adjus­t­ment, please contact us by telepho­ne at: +49 6196 - 52 53 957 or by e-mail to: doerr@kern-unternehmensnachfolge.com

TIPS for further reading: 

Costs of a business succes­si­on or an M&A project

Talking helps, also with business succes­si­on

Love is blind - even when buying a company?

Selling your business - how to increase the value of your business!