Want to sell your business? It’s a complex process with its share of challenges. Make things easier on yourself by learning about traps to avoid, tips to keep in mind, and the steps to follow to sell your company with more ease.
If you’re selling your business, you can’t make it up as you go. To attract potential buyers and sell for the best price, Pierre Tessier, senior director of the business transfer sector at the National Bank, suggests starting by reflecting on your personal situation.
“The first thing you should do is consider whether it’s the right time to sell, leaving out your business’ current situation. Do you have enough money saved up for retirement? Have you maximized the value of your company? What do you want to do afterwards? Do you want to step away from the business completely or stay involved on the management team or as a minority stakeholder?”
The answer varies depending on your level of financial planning. “By asking themselves these questions, business owners avoid finding themselves in a tough situation when the sale closes.” That’s why, the first thing you should do is speak with your personal financial planner.
You should increase your business’s appeal by maximizing its value. “It’s similar to selling real estate. People make sure to tidy up to attract buyers. In business, this can translate into improving profitability and cutting unnecessary expenses,” adds Pierre Tessier.
Once you’ve determined that it’s the right time to sell, you’ll have to get your books, your minutes, your contracts, and your legal structure in order.
You’ll also have to do some fiscal planning. “Any sale or company transfer carries tax implications, as the business owner may be taxed on the sale,” Pierre Tessier reminds us. That’s why it’s important to plan the transaction with a tax specialist. “In cases where certain conditions are met, the seller may be eligible for a capital gains exemption. To find out whether the company qualifies, there’s nothing more valuable than a tax expert’s advice.”
Selling a business in Quebec is a complex process. For help navigating all the legal, accounting, tax, and regulatory aspects, it’s best to seek expert advice.
“While entrepreneurs know their field, they aren’t necessarily specialists when it comes to selling a company,” says Pierre Tessier. “Speak with a financial planner, a business transfer specialist, a tax expert, an accountant, and a lawyer. That way, the transaction will go smoothly, and it will help you steer clear from bad decisions.”
You may find yourself in a delicate situation given your emotional ties to your company. Delegating the transaction to experts has the added benefit of rationalizing negotiations.
Relying on outside guidance will also help you stay focused on doing business, especially since finding a buyer and closing the sale can take several months. During this time, creating value must remain a priority. You need to manage your company as if you plan on keeping it—in other words, do what is best for the business in the long-term.
Some entrepreneurs have a maintenance strategy rather than a growth strategy. “That’s a mistake some owners make. They stop growing,” says Pierre Tessier. “Avoiding risky decisions and investments is understandable, but having a laissez-faire attitude can be just as dangerous. A well-calculated investment maximizes the value of a company, which is beneficial prior to its sale.”
It’s easy to get absorbed by the little things. “Business owners can sometimes be passive and manage things one day at a time.” Even if you’ve made the decision to sell, continue to invest in innovation and improvement. Otherwise, your company’s value may suffer.
In order to maintain the value of your business, continue managing your daily activities.
Ideally, you should be able to oversee the business as you work on the transaction. In practice though, this can be difficult. “Surrounding yourself with external resources to prepare for the sale is the best course of action. That way, it consumes less of the internal staff’s time and it allows the manager to take care of daily tasks without too much trouble.”
When asked whether he recommends including employees in the sales process, Pierre Tessier offers a nuanced answer. “Anticipating a transaction can make employees worry about their job security. At the same time, you have to show transparency. We recommend warning employees once the sale is imminent. As for management staff, such as a V.P. of finance, that’s different. They must be informed as soon as possible so they can provide all the relevant financial information.”
Preparing a business for a sale can take years. When is the ideal time to sell? “It depends,” Pierre Tessier explains. Of course, it’s best when market dynamics are in your favour.
If your particular industry is cyclical and your company is in a downturn, you might as well wait for an upswing to sell. “On the other hand, if it’s stagnant or if it’s reached a plateau in terms of value, it might be better to sell your company quickly.”
There are objective ways to determine the value of your company. It can be evaluated based on its assets, the sale price for comparable businesses, or its cash flow.
“You have to be careful, because business owners tend to overestimate or underestimate their company’s value.” That’s why Pierre Tessier recommends seeking out a professional valuator.
They can determine a sale price bracket by analyzing the business’ net value and what it’s able to generate (earnings before interest, taxes, depreciation and amortization—EBITDA) while taking into account its existing debts.
The calculations vary case by case when it comes to business acquisitions. The sale price may vary depending on the type of buyer (individual, family member, major corporation, etc.) and on their strategic interest (technologies, patents, location, etc.), if applicable.
“A potential buyer is interested in the profits that a business can generate in the future. That’s why they also pay attention to its recent profitability.”
There is always a certain subjectivity to any transaction. Your company’s value can take into account future cash flow, intangibles that stem from a competitive advantage, and market perception in terms of supply and demand. To learn more, take a look at our Making a Successful Acquisition guide.
If your succession plan is more of an acquisition plan, find out more about the benefits and the process.
“Basically, if there’s one thing to take away, it’s the importance of having the right support,” concludes Pierre Tessier. Finding the right collaborators will allow you to manage your expectations better, which will lead to a smoother path towards a deal that is satisfactory for both parties.
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