What happens to my reserves when the company is sold?

What happens to my reserves when I sell?

Reserves can influence the sale of a company from several perspectives. How these are handled depends largely on the structure of the deal.

1. Asset deal or share deal – the difference matters

• Asset Deal: When selling individual assets (e.g., machinery, real estate, customer contracts), reserves generally remain with you as the seller, as the buyer only acquires selected assets. Financial resources such as reserves or liquid assets are not transferred in this case.
• Share Deal: When company shares (e.g., LLC shares) are sold, the reserves and all associated financial items are automatically transferred to the buyer. They are integrated into the company valuation and thus influence the purchase price of the company.

You can find more information on this topic in our article “Asset Deal vs. Share Deal – Differences and Advantages.”

2. Withdrawing reserves before the sale – is that possible?

As an entrepreneur, you can often distribute reserves or retained earnings before selling your business. This is usually done by distributing profits to the shareholders. This step can make good economic sense, but it must be well planned in order to avoid tax disadvantages. Withdrawing reserves reduces the purchase price, as these funds are then no longer available to the company.

How do reserves affect the value of a company?

Reserves are often a double-edged sword: on the one hand, they may increase the value of the company, but on the other hand, they may be of no interest to buyers if there is no clear strategic use for them.c

• Reserves can offer security Reserves increase the financial stability of a company and are often valued by potential buyers as a liquidity buffer. For example, they can be used to cover upcoming investments or liabilities.
• The focus is on operating profit Please note: Buyers usually place more value on operating profit (also known as EBITDA) than on the amount of reserves. A healthy core business is often more decisive than excess cash reserves in the company.
• Reserves and the purchase price If surplus reserves or liquid assets are not immediately necessary for business operations, the buyer may insist that they be deducted from the purchase price. As the seller, you should therefore develop a clear strategy early on for how to deal with your reserves.

Every transaction process is unique and has its own individual characteristics, which depend on the specific circumstances of the company, the industry, and the parties involved. It is therefore crucial to rely on experienced M&A advisors who not only have in-depth technical knowledge, but also the ability to develop tailor-made solutions. Professional advice can help to identify potential stumbling blocks at an early stage, make the negotiation process more efficient, and thus realize the best possible enterprise value.

What tax aspects should be considered?

When it comes to buying a company, taxes are a key issue when dealing with reserves. Every decision, whether to distribute reserves or keep them in the company, has tax implications.

Important: Conpair does not offer tax advice. Therefore, please always consult your tax advisor to clarify all tax issues in advance and work out a structured solution for your reserves.

3 strategies for making smart use of reserves before selling your business

Reserves can be used strategically depending on your company’s individual situation. Here are three approaches you can pursue together with your advisors:

1. Reinvestment in the company Excess reserves can be used to make your company more attractive for sale. Investments in machinery, digitalization, personnel development, or marketing increase the value of the company and make it more interesting for buyers.
2. Distribution of reserves If reserves are not necessary for day-to-day business, you can withdraw them as profit distribution before the sale. This reduces the purchase price, but at the same time you create transparency for the buyer—and secure your capital before the deal.
3. Reserves as a point of negotiation Reserves can be used as a strategic negotiating tool in the sales process. For example, if the buyer needs liquid funds for operational purposes, this could increase the purchase price. As experienced M&A advisors, we are happy to help you present these positions in the best possible light.