Understanding Redundant Assets
When assessing the value of a business, it’s important to be able to understand and identify redundant assets. Even though redundant assets are often misunderstood, such assets can have a material impact on the value of the business.
What Are Redundant Assets?
In simple terms, a redundant asset is any asset which is not needed by your business for ongoing operations. Since these assets are not necessary for your business to function, a Toronto business valuator will separate them and add their value to the value of the operating business.
What to do with Redundant Assets if You Are Selling Your Business?
Take for example two business. They are equal in every way, except that one business has a portfolio of marketable securities, redundant to the business. All else equal, the business with the marketable securities will have a higher value due to the ownership of these redundant marketable securities.
When selling the business, the owner would likely extract the marketable securities prior to sale or else want to be compensated for their value. There may be tax advantageous ways to transfer redundant assets from the business prior to a sale.
Assets That Appear Redundant May Not Be
There may be case where it appears that a business has a redundant asset but it is actually required for the operations of the business. For example, a life insurance policy with a cash surrender value of $100,000 may appear to be redundant, but if it is needed as a covenant for a bank loan, it may not be redundant.
A business valuator will assess the level of working capital to determine if there is redundant working capital (i.e., extra cash or accounts receivable in the business).
The safest way to make an informed decision is to talk to a Fuller Landau business valuator. They can help you to identify your redundant assets and determine the best course of action.