Your small business has done well for you over the years and produced steady income. But is it ready for a buyer?
For some people it can be a struggle to sell even a successful business when they’re ready to retire. Most entrepreneurs are so focused on their customers or clients that they don’t have time to think about the business side of the operation or boosting growth, which is what many buyers want to see.
If you’re contemplating selling your business, you’ll need to ensure that a future buyer can expand it or at least see an opportunity for growing its success. Knowing how to sell a business can be the difference between selling it at a great price and struggling to find a buyer.
If you plan ahead and think like an entrepreneur, then selling a business you’ve spent your career building up should be a lot more feasible. Below are some useful tips on how to sell a business in Canada.
Get help early
Selling a small business in Canada takes time, so start planning for a sale up to five years in advance. Bring in professionals, including a business consultant to help make your business more profitable, and an accountant to better organize the company’s finances.
You should check in with your financial planner early to examine any tax-planning opportunities and appropriately structure your business for a tax-efficient sale. If you wait until you’re about to sell your business, your options might be limited.
Gather essential documentation
Potential buyers might want to see your financial statements, profit and loss accounts and tax returns going back at least three years (so start creating these now if you don’t already do so each year). If any assets are to be included in the sale of the business (such as any business equipment, computer hardware, etc.), list them, alongside approximate current values.
A list of your suppliers would also be helpful, along with any contracts you may have in place with them. You should also provide details of the status of your business premises (mortgage, rental lease or ownership).
Get your business valued
When you first start looking at how to sell a business, one of the most important steps is to get an accurate estimate of what it’s worth. It could make sense to speak with a chartered business valuator (CBV) or business broker to help gain a realistic idea of its value. A CBV will generally look at all sorts of financial and growth metrics which can help you decide on a fair selling price.
Having a CBV help you determine the value of your business will also give the selling price more credibility and help during negotiations.
Find a buyer
Having a vibrant professional network can help get the word out to prospective buyers, such as your current colleagues and competitors. It’s best to nurture a wide network in advance of a sale, if possible.
Know the limits of selling a business alone, though. Engaging with a business broker, who knows the ins and outs of selling a business, can make things go a lot smoother.
Sort out staffing issues now
Potential buyers not only want to buy a client list and future growth potential, they also want capable staff. Make sure your staff has contracts with clear job descriptions. Often, entrepreneurs don’t have their team on contracts, and that can be a red flag for a buyer.
Also, consider getting an audit to determine whether staff are using their time effectively. If you have the business open for 40 hours a week, but you’re team is only really working 30, you need to trim that down to highlight the upside to a potential buyer.
What to do with the proceeds
This is where your CFP professional can be most valuable. They can help you to minimize your tax obligations from selling your business (which could be considerable if you sell it for a substantial profit).
Your planner can also go over the best options available to you for using the money, whether that might be to save for retirement, pay off debts or provide retirement income.
What happens if you can’t sell?
It’s important to understand whether selling your business is even feasible. If there’s a high demand for your services, such as a general medical practice, new doctors may be able to acquire clients quickly after graduation without having to buy an existing practice.
If that’s the case, and your business doesn’t sell, you could stop operating, sell some assets, such as furniture and equipment, and if the business is incorporated, consider what to do with the corporation after retirement.
Before doing anything drastic, though, it’s a good idea to talk to your tax advisor about the best course of action. If you wind up the corporation, there could be immediate tax consequences. If you keep the corporation, you could maintain tax deferrals and only be taxed on the money you pull out of the business, as well as on investment income earned in the corporation.
Getting prepared for selling a business might take a little longer than you’d hoped, but it pays to do what you can to get your business to the level that people will be clamoring to buy it.
Seek advice first
Now you know how to sell a business in Canada, you should talk to your professional experts before moving forward. Discuss your plans with your CFP professional now instead of waiting until you’re ready to sell.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.