Whether you’re retiring, passing your business on to family, or considering other endeavors, selling or transitioning your business can be a complicated and stressful process. If you are considering transitioning out of your business, make sure to take the following steps to prepare yourself and your business for sale.
Determine desired objectives
Your objectives for your business, your family, and for other key stakeholders need to be defined, evaluated, and assessed. Is your business ready for transition? Most aren’t, simply because a focus on growing and running a successful business doesn’t ensure the systems and processes are in place to ready it for transition.
Determine your optimal exit strategy
Whether you are considering a family transition, an external sale, a management buyout, or even an IPO, it is important to sort through the pros, cons, and implications of each option.
Assess the readiness of your business and the people involved
• Are all processes and procedures well documented?
• Is the business consistently profitable?
• Are all your contracts up to date and assignable?
• Is your minute book up to date?
• Are your government obligations up to date? (PST, GST, payrol taxes, etc.)
• Are there any tax planning and/or insurance structures you should put in place before you sell?
Calculate value and review tax (and other) implications
The first step is to understand the value of your business. A proper valuation combines several appraisal methodologies to accurately determine value. It incorporates business sale statistics and recent transactions in your industry across North America, as well as current information about the economy. The nature of a valuation process makes it easy to defend your price to prospective buyers (or CRA, in the case of a family transaction).
Prepare the business and the people
Preparing your business for sale means addressing all of the issues previously flagged. To the extent the value isn’t high enough to provide the result you want, the business can be grown and improved until the bottom line drives the price you want.
Execute the strategy
Determining the optimal buyer and how to approach is critical. It’s your broker’s business to know who is in the market and how to bring out your ideal purchaser. They know where and how to advertise your business in the most productive fashion and how to screen potential buyers to avoid tire kickers.
There are two main documents required to take a business to market and to protect confidentiality. The first is a one-page “teaser” document that does not identify which business is for sale. The second is the Confidential Information Memorandum (CIM), which does disclose the name of the business and enough information for a buyer to make an informed decision on the next steps. Your business broker has the experience and knowledge to compile these two documents but you must be the major contributor.
Just because it is closing day doesn’t mean the closing process is over. The money and legal documents should all be signed, but items that remain to be sorted out are “post-closing adjustments.” These include net working capital adjustments, tax filings, legal documentation, and training.
To learn more about selling your business, download our free eBook here!