Deciding whether to sell your business or not is an important decision that requires much thought and attention to detail. Having spent countless hours growing your business to what it is today, the ups and downs, and in many cases, your role in it becoming the business of today, is an integral part of the organizational mission. The very last thing you want to put at risk is your hard work. However, deciding when to do it, and ensuring you get the right transaction, pricing and buyer is the most difficult part of the process.
We’ll cover key touchpoints on the way, and the steps towards selling your business. For more information on this topic, download our free guide, “Insider Tips on Selling a Business in Canada”. This guide is a companion piece to this blog post that you can use along your journey as you begin to prepare for exit.
Table of Contents
- Navigating the Sale: Key Strategies for Success
- Preparation Before Selling
- Determining the Motive for Sale
- Mapping Out Your Timeline
- Determining Your Business’s Value
- Leveraging the Expertise of a Broker
- Preparing Your Documentation and Finances
- Securing Confidentiality and Evaluating Potential Buyers
- Reviewing Online Reputation and Facility Conditions
- Assessing Facility Conditions
- Comprehensive Support for a Successful Sale
- Navigating Potential Deal Breakers: Overcoming the 5 Pitfalls of a Business Transaction
- Navigating the Final Stages: Ensuring a Smooth Transition
- Negotiating with Precision
- Integrating a Transition Protocol
- Upholding Due Diligence Standards
- Transitioning After the Sale
- Diversifying Financial Assets
- Frequently Asked Questions: Selling a business in Canada
- Achieving Success with Sunbelt: Our Unique Approach to Selling Businesses
- Complete Documentation: Package your financials, your process, your ecosystem – everything you do, how you do it, every system that supports your business. Operations, marketing, sales, hiring staff, customer service, training your personnel, accounting system, billing and credits, etc. A great business document saves time and energy in the sale process.
- Professionalism: Partner with professionals who possess a deep understanding of business sales The broker is your liaison here, connecting you to the people who know what they are doing in getting through the big mess that is selling a business.
- Patience & Diligence: But selling a business is a process that requires patience and diligence. To overlook details is to invite trouble. It could be the difference between the deal ending up looking good and not so good. Patience and diligence, that is the way.
Preparation Before Selling
Before embarking on the journey of selling your business, it’s essential to introspect and ask yourself a pivotal question: Are you truly ready to sell? This introspection not only clarifies your motives but also sets the stage for a smoother transition. If your answer remains affirmative, the path to selling your business becomes clearer.
Determining the Motive for Sale
The decision to sell a business can stem from various reasons, such as retirement, relocation, burnout, or personal circumstances. While the selling process demands significant time and effort, many owners find themselves at a crossroads, not fully prepared for the next chapter. Take the time to unearth the underlying reason for the sale, ensuring emotional readiness for the transition ahead.
Mapping Out Your Timeline
Rushing through the sale process risks overlooking crucial details, leading to frustration for all parties involved. Address any ongoing litigation or pending legal matters before initiating the sale, as resolving these issues may take time. Additionally, factor in your post-sale plans, as you may need to remain involved to facilitate a seamless transition for the new owner. Keep in mind that the sale process typically spans three to 18 months, excluding the training period. Therefore, early preparation and patience are key for a successful outcome.
Determining Your Business’s Value
Often, the value of your business will be determined by reference to your turnover and profits, but as a smaller business you may have personal discretionary expenses, which could give potential purchasers of your business pause for thought. If so, talk to your accountant to explore ways to reduce them and maximize your revenue and profit without compromising your standard of living.
Assessing Your Human Capital
Your employees are a key component to the value of your business. Assess your employees before putting your business on the market to ensure the right people remain in the right roles for the future. Check contracts, employment agreements and non-compete clauses so that your team is stable throughout the sale. Furthermore, providing your business with a solid team of dedicated and competent employees will enhance the appeal of your business to prospective buyers.
Obtaining a Comprehensive Valuation
Working with a business broker can help accelerate the valuation process and give you a definitive look at your company’s value. By removing the guesswork, it sharpens your thinking and gives you a better idea of the steps you can take to realize the full value of your business before you put it on the market.
Leveraging the Expertise of a Broker
Utilizing a broker significantly streamlines the business sale process. With access to extensive resources, brokers navigate complexities, reducing hassles and frustrations. Their specialized knowledge ensures you attain maximum value for your business while optimizing tax planning for the sales structure. A broker adeptly documents and markets your business, facilitating a seamless transaction with a mutually beneficial outcome.
Preparing Your Documentation and Finances
Thorough documentation and financial records are paramount when selling your business. Prospective buyers, along with their legal and financial advisors, scrutinize these documents extensively. Typically, buyers require five years of financial statements, an updated minute book, proof of business ownership, intellectual property registration, and copies of leases or contracts. Ensuring meticulous preparation of these documents enhances the attractiveness and credibility of your business to potential buyers.
Securing Additional Documentation
In addition to comprehensive financial statements, obtaining supplementary documentation is essential for a seamless sale process. This includes copies of licenses, permits, and evidence of government remittance payments. Your broker will compile a blind profile and detailed marketing packages, pivotal tools in showcasing your business to potential buyers. Before proceeding, meticulously review these materials to ensure accuracy and effectiveness in presenting your business’s value proposition.
Securing Confidentiality and Evaluating Potential Buyers
Confidentiality is paramount in business sales to prevent disruptions such as staff turnover or landlord concerns. Your broker employs strategies to market your business discreetly while filtering out inexperienced buyers. Trust in their expertise while offering insights when necessary.
Reviewing Online Reputation and Facility Conditions
Assessing your business’s online reputation is crucial in attracting potential buyers. Utilize platforms like Google to evaluate reviews and ratings, mitigating any negative press and fostering positive feedback. This proactive approach enhances the appeal of your business to prospective buyers, facilitating a smoother sales process.
Work with an Accountant
After you’ve reviewed the business valuation, discuss tax planning with a reputable and knowledgeable accountant. Your broker may be able to help you find someone who has worked with them before and can provide valuable insights.
Assessing Facility Conditions
It’s essential to evaluate all aspects of your business, including its physical facilities. After years of familiarity, a fresh perspective can reveal opportunities to enhance its appeal to potential buyers. Conduct a thorough inspection to identify areas for improvement that could make your business more attractive during walkthroughs.
Comprehensive Support for a Successful Sale
In addition to a broker, assembling an experienced team and leveraging valuable resources is essential to mitigate risks and maximize the potential value of your sale.
- Legal Expertise: Collaborate with a lawyer familiar with business transactions to address various legal aspects and ensure comprehensive coverage of your needs.
- Financial Guidance: Engage with a reputable accountant to discuss tax planning strategies post-business valuation. Your broker can facilitate connections with professionals familiar with their process, providing valuable insights tailored to your situation.
- Insurance Considerations: Explore the option of adding life and critical illness insurance contingent on the sale. This type of insurance safeguards your interests, ensuring loan repayment in unforeseen circumstances. Often, these expenses can be considered a business expense for new owners, offering additional financial security.
Since dealing with business matters could sometimes have negative outcomes, to ensure that finalizing a business deal goes smoothly, knowing the potential pitfalls is necessary. Below are the five factors that could result in the failure of the business deal.
- Legal Hurdles: Work with reputable lawyers to overcome legal challenges and meet all obligations in the contract.
- Financial Issues: Keep lenders apprised and work with them to arrange financing and resolve financial issues that arise during the exchange.
- Landlord Issues: Stay in contact with a landlord to ask for possible prospects of my options and find possibly amended terms of lease and approval for the business transfer.
- Accounting Problems: Always consult trusted seasoned accountants to properly document finances and advise on accounting issues.
- Franchisor Involvement: where franchisors play a role in approving prospective franchisees – for example, reviewing credit reports still required by a franchise agreement – include them in the process.
First, minimize that risk by working with the potential buyer and your business broker to develop a realistic business plan that will identify potential risks and how to overcome them. Additionally, make sure everyone involved is singing from the same hymnal throughout the process, to keep things moving and to overcome obstacles.
As we approach the culmination of the sale, it’s crucial to maintain patience and diligence. Your broker will guide you through the remaining steps, providing unwavering support to facilitate a seamless transition into your new chapter.
Negotiating with Precision
Arrange buyer meetings through your broker and approach negotiations with a cooperative mindset. While it’s tempting to delve into pricing and terms, trust your broker to handle these discussions effectively. Remember, the initial offer may not be the final one, so allow your broker the space to negotiate on your behalf.
Integrating a Transition Protocol
Anticipate the buyer’s need for a structured training and transition program, a pivotal aspect of the deal. Your broker will incorporate this into the offers, ensuring that both parties are aligned on the transition process. While buyers may request additional elements, your broker will streamline these requests to ensure a smooth and efficient transition.
Upholding Due Diligence Standards
Seller financing, typically comprising around 20% of the purchase price, plays a crucial role in safeguarding both buyer and lender interests. As such, thorough review, questioning, and additional research are imperative, albeit time-consuming. Respect the buyer’s diligence process, refraining from hindering their investigations. Your business broker will adeptly address concerns and facilitate necessary clarifications, ensuring a smooth progression.
Transitioning After the Sale
Upon finalizing the sale, expect to formalize the transfer through a bill of sale, officially passing ownership to the buyer. Additionally, a lease assignment and security agreement may be required, preserving your line on the business. The buyer may also request a non-compete agreement to prevent competition.
Diversifying Financial Assets
With the sale proceeds now accessible, consider diversifying your net worth beyond the business. Explore options such as gifting, trusts, and asset protection strategies to secure your financial future. Whether contemplating retirement or venturing into new endeavors, seek guidance from advisors to navigate risks and optimize opportunities for long-term financial stability.
Frequently Asked Questions: Selling a business in Canada
Selling a business involves managing numerous moving parts, adding complexity to the process. It’s essential to communicate openly with your broker to address any queries or uncertainties, ensuring you’re well-informed to make informed decisions. Here are some most asked questions that you must know:
The duration needed to sell a business varies based on factors like size and industry dynamics. Smaller businesses may find buyers relatively quickly, often within three to six months, while larger enterprises might take nine to eighteen months or more. Industry conditions and economic trends also influence the process; robust demand accelerates sales, while niche markets may face delays.
Finding the right buyer, aligned with the business’s values and objectives, is crucial and may require extensive networking and negotiation. Due diligence, assessing the business’s viability and risks, adds to the timeline, especially for complex ventures. Negotiating terms and ensuring regulatory compliance further extends the process.
Once terms are agreed upon, there’s a transition period for asset transfer and personnel training. Collaborating with experienced brokers and professionals can streamline the process, ensuring a successful sale within the expected timeframe.
Tax considerations play a significant role in the sale of a business and can vary based on the structure of the transaction. In a share sale, where shares of an eligible Canadian small business are sold, sellers may benefit from the Lifetime Capital Gain Tax Exemption, potentially avoiding tax altogether. Conversely, in an asset sale, 50% of the capital gain is added to the seller’s income, subjecting them to taxation.
However, strategies exist to mitigate tax liabilities, such as structuring the sale through a sole proprietorship. For instance, executing a rollover just before the sale enables sellers to utilize the Lifetime Capital Gain Tax exemption, reducing the taxable amount. Engaging with tax professionals familiar with Canadian tax laws is advisable to optimize tax efficiency and minimize liabilities during the sale process.
Selling a business involves fees for valuation, accounting, legal, and brokerage services. The final cost will vary with the type and number of services and the reputations of the firms involved. A common way that reputable business brokers charge fees is on a sliding scale. An example is a charge of 12 percent of the first million in sale value, 10 percent of the next million, 8 percent of the next million, and so on, and the schedule slides down to, say, 2 percent of amounts over $6 million.
These costs might appear considerable, but the value added by working with an experienced broker goes far beyond simply facilitating the sale. Brokers can introduce sellers to reputable professionals who will conduct their expert work and provide sound advice throughout the transaction. By working with reputable professionals, a seller can benefit from the best practices each profession has developed to ensure a smooth and effective transaction so that ultimately the business sale will return maximum value.
While it’s technically possible to sell a business without engaging a broker, we strongly discourage this approach. Selling without professional assistance significantly increases the risk of undervaluing your company and overlooking crucial details. Experienced brokers possess the expertise to accurately assess your business’s worth, identify potential buyers, and navigate complex negotiations.
Moreover, deals conducted without a broker often encounter challenges and may ultimately collapse. Without a skilled intermediary to facilitate communication and address issues, both parties may struggle to reach mutually agreeable terms. By enlisting the services of a reputable broker, sellers can streamline the selling process, mitigate risks, and optimize the value of their business sale.
It is, however, an option for small firms, and even if it is an option, it does carry a degree of risk. The usual way that shares are sold is by companies that are a bit bigger—or perhaps a lot bigger. And it’s often shops that will stay as the majority owner, rather than intending to sell outright. Buyers are often private equity groups or family offices investing for strategic purposes.
But selling a share in a small business is a much more complex transaction, with more potential pitfalls, involving issues such as governance structures and shareholder agreements, regulatory compliance, and potential dilution of ownership/decision-making control.
You should consult with a lawyer and financial advisors before going this route, and you should also be aware of other ways to structure your business and achieve your business goals.
Sure, you can make it happen faster. One way to do that is to prepare your business in detail in advance of placing it on the market. Get everything ready before you go to the market. This will make potential buyers much more attentive as they can view your company with better clarity.
This form of proactivity consists of getting your house in order in the most methodical way possible, maximizing operational efficiencies, dealing with any nagging law-and-order issues, and improving the esthetic aspect of your business so that it will sell more quickly.
You will also find it to be easier and quicker: for example, working closely with experienced business brokers or lawyers can help get the deal across the line. You might have a preconceived notion that you don’t need their expertise. However, sometimes these experienced professionals can see potential pitfalls, and serve as a go-between for you and the buyer.
With these preventive measures and proper professional help, you will avoid delays and use the selling time more wisely, which will help you accomplish your goal more quickly.
Achieving Success with Sunbelt: Our Unique Approach to Selling Businesses
At Sunbelt Canada, we pride ourselves on serving as dual agents, advocating for the interests of both parties to achieve a mutually beneficial outcome. This unique approach ensures that your broker possesses a comprehensive understanding of each party’s concerns, facilitating the development of solutions that satisfy all stakeholders. As a result, we boast an impressive closing rate of approximately 80%, surpassing the industry average of 50% or lower.
Moreover, our commitment to dual agencies mandates full disclosure to both buyers and sellers, fostering transparency and trust throughout the transaction. With Sunbelt, you can rest assured that your business sale will be executed with integrity and expertise, minimizing surprises and maximizing success.
Reach out to us today to discover how we can assist you in navigating the intricacies of selling your business and achieving your desired outcomes.
The Process of Selling a Business