So, after years of hard work and dedication, you are thinking about selling your business. Makes sense. At one point, every single business owner arrives at this critical juncture and needs to decide for themselves which path to take. Do you continue running the business or do you push forward with selling? Your reasons for contemplating a sale are your own. Whether it’s because you want to pursue other passions, have more free time to travel or spend with family, if you are thinking about selling, you need to prepare. Carefully planning your exit is imperative to ensure that you receive fair market value for the sale. We talked about succession planning (see – 7 Straightforward Steps to Succession Planning) and retirement planning for small business owners (see – Retirement Planning Tips for Small Business Owners), in earlier articles. Both are worth reviewing and can offer insights into assisting you with formulating plans to sell your business.
Before you set the wheels in motion, consult with a financial advisor to determine the steps needed to prepare for sale, strategies that will help maximize the sale price of your business and any tax implications. One of the first things to do is have a business valuation completed. A business valuation will determine the fair value of your business by analyzing your company’s earnings, market conditions and assets. If you want more information about the business valuation process, Business Development Canada (BDC) offers some great insights. When looking at strategies to improve fair market value of your business, consider options such as, finding ways to increase profitability (e.g., tapping into untapped markets and diversifying), improving cash flow, streamlining, and organizing your business processes, reducing expenses, and cleaning up your books. If you need help with the process, Business Development Canada offers an excellent free PDF entitled “Checklist: Prepare Your Business for its Sale” that can walk you through important preparation steps that might be relevant, from determining what you want to achieve with the sale to reviewing your intellectual property rights such as, assets that are copyrighted, patented materials, products or ideas, certifications and licenses specific to the business.
Another key factor for business owners to keep in mind is the timing of the sale. The COVID-19 pandemic had a devastating impact on many small and medium-sized businesses. Those that survived are still in the throes of recovery, which may mean the decision to sell will need to be postponed until the business bounces back. Unless there is a compelling reason to move quickly, use this time to implement strategies that will maximize the fair market value, find a suitable buyer and plan for the eventual sale. When discussing the sale with your team of advisors, another topic that warrants consideration is how you plan to attract potential buyers. Will you use a business broker, present the business as a possible acquisition, or canvas your competitors for potential buyers?
Lastly, depending on the type of small or medium-sized business you own (sole proprietorship, partnership, limited liability company or corporation), you need to think about how to sell the business – will it be an asset only sale or a share (ownership) sale? In most cases, if your business is profitable, buyers will want ownership interest. If the business is losing money however, they are generally more inclined to purchase the business assets and not take on any obligations or debt that your business may have incurred. If you don’t already have a team of professionals to guide you through this process, Vexxit can help you find a dream team of Canada’s top advisors, including lawyers, accountants, financial planners and business consultants to help navigate the successful sale of your business.