What happens to cash in the bank when you sell a business?

What happens to cash in the bank when you sell a business?

This question was asked in Quora. Quora is an American question-and-answer website where questions are asked, answered, followed, and edited by Internet users, either factually or in the form of opinions. Its owner, Quora Inc., is based in Mountain View, California, United States.

It’s a great question because I want to know what exactly I’m buying when I buy a company. So the answer is not cut and dry as you’ll see in my following response.

 

Mike AddisB.S. Business & Accounting, Bentley University (1975)

Quora Answer

Great question. I’ve bought and sold several businesses. So there is no cash when the business is bought or sold. The reason is that the assets of the business are being sold and cash is not. So cash is usually left when you sell the business.

Cash is usually the one asset that’s not around. However if you sell a business that is a C corporation and the buyer is buying the stock in the company, like the company I have then everything is included in the sale of the company including, but not limited to the liabilities (what the company owes) and any law suites the company is involved in too.

Now if you watched the movie Too Big To Fail, you’ll notice in the scene where Lehman Brothers are trying to sell its company before it went into bankruptcy. So the Lehman bankers were taking all the ‘Toxic Assets”, basically their real estate portfolio out of the Lehman company. They would then form a new company with those toxic assets, making the main company Lehman Bros. cleaner for the Korean buyers.

In the above example, would the cash stay with Lehman? The answer is yes. So just the real estate assets were being removed, even though Lehman, like my company is a C corporation. The only difference is my company is still in business.

Here’s how cash stays or not in the sale of the company.

  1. C Corporations that issue stock usually keep the cash in the business upon the sale of the company.
  2. C corporations like publicly traded companies issue stock, so when I buy Apple stock, I am buying all the assets (including cash), all the liabilities, including any and all claims against the company in the form of law suites for example.
  3. The above Lehman Bros. example shows how assets can be segmented away for the parent company, but in this example not the cash.
  4. If I were to sell my small private company, I would be selling all the assets without the cash. The buyer would not want to assume any of my liabilities, of which I have lines of credit and SBA loans. He or she just wants the assets. In my case that would be Inventory, Receivables, customer list (30K plus), Furniture and fixtures, and my e-commerce platforms with over 8,000 Five star ratings.

The selling of a business that has no stock, like an LLC, Sole Proprietorship, S Corporation, and partnership would most likely remove the cash and just sell the assets, with the buyer assuming none of the liabilities. You can call this an assets sale along with the Goodwill the company has built over the years.

If there is a building owned by the company, then they can be sold too as one of the assets. So this assumes the r of the building does or doesn’t want to include the building in the asset sale.

Summation

The sale of a business that is privately held and a C corporation with issued stock sells everything in the company including all assets, liabilities, and any lawsuits or agreements the company made with anyone during its years in business.

Private companies that have no stock issued as mentioned above will usually sell just their assets and remove the cash, but not always, depends on the agreement.

The Sale of the C company stock like Apple Computer or Amazon, like the small C corporation, includes everything in the company. Including but not limited to the cash, all other assets, Liabilities, and agreements, patents, trademarks, lawsuits, you name it.

The Exception would be if the company issues a one-time dividend removing all the cash and paying it to the stockholders, or a Real Estate Investment Trust (REIT) that pays out 90% of its cash every quarter for example. So unless it’s written into the charter that the company pays out its cash, then the cash stays with the company and or trust.

Conclusion

I would take the cash out if I were to sell my company. If I kept the cash in, then the buyer would have to compensate me for the cash plus all the assets he or she is buying. Business sales in privately held companies can also include cash. it’s entirely up to how the buyers/sellers structure the deal. Therefore cash is cash, and that amount would be added onto the asset sale, after the agreed amount of the asset values.

Mike Addis Mega Shop – Maddiscash

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2 thoughts on “What happens to cash in the bank when you sell a business?

  1. stornobrzinol says:

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