We have five years before our target exit, and we want to use this long runway to clean up our corporate entity structure. How do we restructure our sister companies and real estate holding entities now so we do not complicate the sale later?

Question

Tyler Smith · Accepted Answer

A five-year runway is the perfect timeline to clean up a complex corporate structure because it gives you ample time to establish a clean track record of separate operations. Buyers want to purchase a clean operating entity, not a tangled web of sister companies, shared administrative staff, and personal real estate assets. Your first step is to legally and operationally separate your core operating business from any real estate holding companies. If the operating business occupies a building you own personally or through a separate entity, you must establish a formal, market-rate lease agreement immediately. This lease should be written on arm's length terms that a third-party buyer would find acceptable. Next, eliminate any shared operational or administrative resources between your sister companies. If your operating business shares accounting, human resources, or warehouse space with another entity you own, you must untangle these shared services. Use your EOS Accountability Chart to ensure that every resource, seat, and expense is clearly allocated to the specific operating entity that is being prepared for sale. Finally, work with your tax professional and legal counsel to ensure that each entity has clean, separate financial statements. By establishing this clear separation today, you will prevent a buyer's due diligence team from discounting your valuation due to complex intercompany transactions and messy overhead allocations.