Planning on Selling Your Business

The decision to sell your business can be a difficult one. Business owners may have many questions such as: When should I sell? How much can I sell my business for? How much tax will be due on the sale? When should I tell my staff and customers that I am selling? The process involved takes time and proper planning. You need at least a year to properly plan your business sale.

Depending on the business it can take months or years to find a buyer and close the sale. Prior to looking for the buyer efforts should be made to make your business as efficient and profitable as possible. Any assets that are no longer needed in the business should be disposed of. Any assets that are not going to go with the business sale should be moved out of the business. You should ensure that your business is in compliance with labour laws and environmental laws, is current with Canada Revenue Agency filings and payments, and is compliant with customer and vendor contracts and any other agency that has oversight on your business.  

If you have documents that detail the procedures for the operations of your business, take time to review and update them so they are accurate and current. If the documents do not exist, create them. They should be prepared on the basis that you can hand them to an employee or a new owner and they will be able to run the business. Franchises have developed operating procedures that, if followed, will give the operator a formula for success. Follow the guidelines and you should make money. Your documents are intended to give the purchaser the assistance required to operate your business successfully.

You should also consult with your accountant and lawyer for assistance in preparing for the sale. These professionals will provide the income tax planning information and contracts needed for a successful transaction. They can also provide insight on how to proceed and protect you from purchasers that may not be qualified to buy your business. They will be your sounding board for ideas and your confidential guides through the process.

Prepare a marketing document that presents your business well and demonstrates to a potential buyer why they would want to own it. This document will provide details of what the business is and does, including a brief history of how the business got to where it is now, a description of the goods and services being provided and information on current equipment and staff. Information regarding the market area and future prospects of the business should be included. Pictures, maps and graphs can make this document more appealing and easier to read. This document should leave the potential purchaser wanting to know more about how they can obtain the success you have.

Prepare a second document that contains the financial history of the business for the past five years. It can also include projections for the next two to five years with a business plan on how the business will meet the projections. This document will demonstrate how you determined the value of the business and why the purchaser will pay you the money you are requesting. Including a cash-flow projection that indicates how the business will pay for itself within a reasonable time period will assist in the sales process.

Deciding on a sale price is difficult. The price must allow the purchaser to earn a living and provide a return on their invested capital. If the price does not allow this, the business likely will not sell. It is important to remember that a successful business will generate more money for the owner if they continue to operate it than if they sell it. You should sell your business when you are ready to allow someone else to take over your success. The purchaser needs to be able to buy your business and make money. 

This article is intended to initiate consideration of those factors involved in selling your business. You should consult with professionals for assistance in implementing your plan.