usually the Seller's closing payment is reduced and the Buyer takes on or pays these loans with those funds.
Director’s Loan Accounts (DLA)
A business sale can often be an opportunity to have DLAs cleared and only incur capital gains tax (CGT on business sales is 10% or 20% at the time of this writing). DLAs are money disbursed or payments made to the directors that are not payroll and are not operational to the business (i.e. such as business expense reimbursement). Typically, the DLA account is used as a sort of placeholder for shareholder disbursements and is turned into dividends by the accountant when the year-end accounts are done. DLA’s must be paid back within 9 months of the fiscal year-end or a tax must be paid by the company (32.5% at the time of this writing). When a business sale transaction happens, the Seller can declare a dividend prior to the business sale to clear the DLA but this can often attract 40%+ tax depending on the amount. Alternatively, the DLA can be paid back on the day of sale from the proceeds of the closing payment. This, in turn, becomes excess cash which is returned to the Seller on closing day and in effect increases the sale value hence attracting only the capital gains tax amount. As always, advice should be taken from an appropriate tax advisor as there are nuances.
Calculating Working Capital (Net Current Assets)
Working capital is the current assets and liabilities of a business that continuity goes up and down as the business continues to operate. The elements of working capital are like a piston that goes round and round with one side high and another lower only to switch back but always maintaining a balance and momentum.
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