Why founders end up with several entities
Founders build in pieces. A second location gets its own company. The building sits in a property entity. A new service line is set up separately to limit risk. A partner joins one part of the business but not another. Payroll runs through one company and sales through another. Each decision made sense when it was made, often on the advice of an attorney or a CPA.
Years later, the business that customers see as one company is, on paper, several. Costs are shared between them, money moves between them, and one may lease to another. The founder understands how it all fits together. A buyer does not, yet.
Ownership can differ from entity to entity, too. A partner who owns part of one company but not another, or a family member with a stake in the property entity, complicates the sale further, because each owner's share has to be agreed before a buyer can be told exactly what it is buying.
Buyers buy a whole. The work before a sale is turning the pieces into one clear story that a buyer can read, test, and price.
What buyers need to see
A buyer evaluating a business made of several entities needs three things from the numbers.
- Consolidated. One set of financial statements that shows the business as a whole: every entity that is part of the sale, added together, so the buyer can see total revenue, total costs, and total earnings.
- Eliminated. Transactions between the entities taken out, so nothing is counted twice. If one company bills another for services or rent, that is revenue in one set of books and a cost in the other, and neither belongs in the consolidated picture.
- Normalized. The adjustments that turn the consolidated earnings into adjusted EBITDA: owner-related items, one-time events, and any arrangement between the entities that does not reflect what the business will pay after the sale.
Without all three, the buyer's accountants will do the work themselves during the Quality of Earnings review, and they will make choices the founder might not have made. A consolidated, eliminated, and normalized set of numbers, built before going to market, is the foundation of a CIM that ties.
The buyer will want this picture for every period it reviews, not only the latest year: the last three fiscal years, and the trailing twelve months month by month. Building it once, carefully, with the eliminations documented, means every later question about a number can be answered from the same file.
The offshore or back-office entity
Some founders run part of the business through a separate entity somewhere else: a back-office team in another country, a support function in its own company, a holding entity that owns the intellectual property. These raise a particular set of questions.
- Is it part of the sale? If the buyer is acquiring the operating business but not the back-office entity, the business may lose capabilities it depends on. If the entity is included, the buyer will diligence it like any other part of the business.
- What does it really cost? Services billed between related entities may not be priced at market. The buyer will want to know what the same work would cost after the sale.
- What questions does it raise? Entities in other places can raise tax, legal, and employment questions a buyer will want answered. Those are questions for your attorney and CPA, and the earlier they are asked, the better.
- Who owns what? If intellectual property, contracts, or key relationships sit in an entity outside the sale, the buyer will need them moved or licensed, and that has to be documented.
None of these makes a business unsellable. Each one is an issue a buyer will raise, and, like every diligence flag, it is better found and framed by the founder first.
When to restructure, and when to leave it
Faced with a complicated structure, some founders want to simplify everything before going to market. Sometimes that is right. Sometimes it creates more problems than it solves.
Restructuring before a sale can make sense when the structure itself would confuse or worry a buyer, when assets the buyer needs sit outside the entities being sold, or when the change can be made early enough to show up cleanly in the trailing numbers. It can be a mistake when it triggers tax consequences, needs consents from landlords, lenders, or customers that are hard to obtain, or happens so close to the sale that a buyer sees only disruption.
Often the better answer is not to restructure but to explain: present consolidated, eliminated, and normalized numbers, document every related-party arrangement at market, and make clear which entities are part of the sale and which are not. A buyer does not need a simple structure. It needs a clear one.
If restructuring is the right answer, its timing follows the same logic as everything else in a sale: early enough that the new structure shows up in the trailing numbers, and settled before the CIM is written, so that buyers see one story from the start rather than a structure that changed while they were reading it.
Restructuring decisions have legal and tax consequences, and they belong with your attorney and CPA. What preparation adds is the buyer's view: which complications will cost you in a sale, and which only need to be explained.