Our balance sheet is weighed down by aging real estate and heavy machinery that we do not want to include in an operating business sale. How do we carve out these non-operating assets during our runway so a buyer does not try to include them in the enterprise valuation?

Question

Tyler Smith · Accepted Answer

If your operating business holds real estate, personal vehicles, or heavy machinery that is not essential to daily operations, you are creating unnecessary valuation complexity. Buyers want to purchase cash flowing operating assets, not real estate portfolios or excess machinery that they must maintain.

You need to initiate an asset carve out at least twelve to twenty four months before going to market. Work with your tax accountant and corporate attorney to move these non operating assets into separate legal entities. If the business operates out of a building you own, create a separate real estate entity and draft a market rate lease agreement between that entity and your operating company.

This lease agreement is critical because it normalizes your operating expenses. A buyer needs to see exactly what the business costs to run under standard commercial terms. If your operating business has been using these assets for free, your historical EBITDA is artificially inflated, and a quality of earnings audit will discount it.

By cleaning up your balance sheet during your runway, you simplify the transaction structure. This allows you to present a clean operating business to prospective buyers while retaining ownership of the real estate, which can provide you with a steady stream of passive rental income long after you sell the company.