FAQs for Business Sellers in Canada
You likely have many questions about selling your business, we are happy to provide these FAQs for your consideration.
Selling a business in Canada can be tricky. Access to capital is limited. Tax issues can be complicated. There are a limited number of buyers because of our small population.
If you want to achieve success hire the best Business Broker you can find. They will add value, streamline the process, source capital for the buyers, maintain confidentiality, reduce your headaches, risk, and save you time.
We recommend you download the book Insider Tips on Selling a Business in Canada.
There are many ways to exit a business in Canada, and let’s face it – we are all going to exit at some point in time. In the past transferring a business to the next generation of the family was common. It is less common now as owners want to realize the value locked in their business to support retirement. Many in the next generation have neither the skills, experience nor the passion for the business and do not want to assume the responsibility. Transferring the business to staff is another option although is carries a lot of risk. Staff typically do not have the funds to purchase and securing funding for them is difficult. If the transaction fails, they blame the seller and often leave the business. This hurts! Simply selling off the assets (Inventory, equipment, client relationships, property, etc.) is another option but generally does not result in maximum value. This approach does not look after staff and clients very well and does not provide a legacy for the entrepreneur who built the business. Often the best approach is to sell the business to a third party. This may be an individual who has the wherewithal, a Private Equity Firm, a strategic buyer who can achieve synergies with their existing business, or sometimes a financial buyer who sees this as a better investment. Use the best Business Broker you can find. They will add much value and are likely to be successful in achieving your goals.
To answer this question, contact your local Sunbelt Business Brokers office. They will provide a free, confidential consultation to help you answer this question. Sunbelt typically works with businesses ranging in value from $250,000 to many millions. It costs nothing to find out and you may be surprised at the results.
If it is sellable Sunbelt can sell it. Sunbelt Business Brokers sell more businesses than anyone. They have the marketing programs, the experience, the process, that results in achieving the sale on terms that work for both parties.
There are many factors that affect the value of a business including maintainable revenue and profits, future potential, systems and processes, loyal and capable staff, technology and its use, location, history, client loyalty, financial systems, recruiting and training systems, and reporting, etc. However, the industry and its future projections, competition, barriers to entry, etc. also play a major role. Sunbelt is very experienced at valuing businesses and has access to the most current information and the best resources and technology. If you want to know what the business is worth, have Sunbelt do a Business Valuation for you. It will not cost much and the information, including how to increase value, is very worth while.
Call your local Sunbelt office. You will find friendly, professional, experienced Business Brokers who are happy to assist you in answering all of your questions.
The time to sell your business is when the market is ready, when the business is ready, and when you are ready. It is unlikely that all three happen at the same time so leave some flexibility however the biggest hurdle is “when you are ready”. This is a very personal issue. Your Sunbelt Business Broker can help you asses readiness in each of these three areas so you can act when the time is right.
You should begin as early as possible but preferably at least three years before you sell. Some of the tax planning strategies take 2 years to be effective. Some of the value enhancement strategies take longer and some of the personal development strategies are never complete. Consult with a Sunbelt Business Broker as early as possible. Their advice and guidance will be a big help and will ensure you act when the time is right and in the way that best serves your purpose and goals.
We recommend that you do not tell anyone you are thinking of selling or proactively using a broker to sell. Staff get nervous as they do not know who will be taking over and you can lose good staff. Competitors can attempt to steal clients on the basis that you will not be there. Suppliers can reduce credit facilities if they know you are selling (their first thought is that you are in trouble). Keep it CONFIDENTIAL. Yes your accountant, your lawyer, your Business Broker need to know but you must swear them all to confidentiality. Bankers and insurance agents can be a source of leaks.
Sunbelt has a pool of International Buyers, a pool of Canadian buyers, and each office has a pool of local buyers. The local buyer pool is large and filled buyers who have signed our confidentiality agreement, provided their financial information and info on their skills, desired industries, risk tolerance, experience, life style goals, desired location, and timing. It is likely that we are connected to someone looking to buy a good business.
You, the business owner can do much to prepare your business for sale and to increase the value when it is sold. Please read Insider Tips on Selling a Business in Canada. It is a fee download from the Sunbelt Canada web site or call us or email us to meet with a Sunbelt Business Broker. They will provide you with a hard copy and the advice you need to start working the steps to increased salability and increased value. This will typically involve cleaning up the books, increasing maintainable revenue and profits, documenting the systems that drive your business, increasing staff training and retention, improved marketing programs etc. It may involve structural changes for tax savings, the use of consultants or a business coach, outsourcing some of the functions that you do not do well. Each business is unique and each business owner and team is unique. Use the Business Broker to help identify what will work best for you.
There are many pitfalls. Over the past 20 years Sunbelt has developed a proven methodology that works. Use it. The process of selling a business is new to most business owners. This may be your first or second time through it. We have sold many thousands of businesses and seen all the mistakes that can be made selling a business. It is complex and involves many players – not just the buyer and seller. The lenders, lawyers, accountants, insurance agents, franchisors, landlords, and many others have a role to play. Let Sunbelt guide you through this. It will save you much grief, headache, and result in a win/win transaction that achieves your goals.
Sunbelt does qualify buyers extensively. It starts with them completing a confidentiality agreement, providing their biography, assessing their risk tolerance, skills and experience, assessing their financial capacity, credit history and lifestyle goals as well as geographic locations that would work for them. Only after these assessments will we decide what businesses could be suitable to introduce them to. We minimize the risk of exposure by not showing them business opportunities that are not suitable.
The selling process can take anywhere from a couple of months to a couple of years. Most businesses sell in 3 to 9 months however larger and more complicated ones may take longer, as will ones that require a specialized skill set in the purchaser or are in a location that is not as attractive to buyers.
We can not answer that question without a lot of information and even then, often only with the help of your accountant. Typical questions might be: Have you used your lifetime capital gains tax exemption. Can we structure this as a share sale, or must it be an asset sale? Do you have loss carry forward? Who owns the shares and how long have they owned them? If an asset sale what allocation of purchase price will minimize tax. Do we have a recent appraisal of the assets to be conveyed? We will work with your accountant, the purchaser’s accountant, your lawyer, and theirs to create the deal structure that works for both of you.
Probably and this is a good thing. It will get you a higher price, it will promote a faster sale, it will give comfort to the lenders and facilitate the transaction, it may reduce your tax liability, it will ensure the training and transition program is completed and it will provide you with an ongoing cash flow. The question is HOW MUCH FINANCING? This varies depending upon your desires and the sellers situation. We typically suggest around 20% of the purchase price however if no other lender is involved it can be higher. You will not finance any purchaser unless you are confident in their integrity, their ability to succeed, and their commitment to succeed.
The buyer will typically provide a personal guarantee in addition to security on the business. Keep in mind that they have also provided their equity in the purchase which us usually 30% to 50% of the transaction value.
This varies depending upon your goals and desires and the buyers experience and the complexity of the business. We have had them as short as a few days to as long as three years. Most run a few months.
Yes, you will have to sign a non compete and a non solicit agreement. The purchaser wants assurance that you will not compete with them for a reasonable period (3 to 5 years) within a reasonable proximity to the business and that you will not solicit the staff, suppliers, or clients of the business.
Each buyer has their own negotiating style. Some will start with their best offer however because your Business Broker is a dual agent they can generally find the areas of compromise that result in a done deal. Some buyers will lowball and expect a long negotiation. Your Business Broker will manage the negotiations and will find the best deal possible for both of you. Sometimes the best alternative to a negotiated agreement is to walk away. Your Business Broker has been well trained in negotiation and the art of the possible.