How to Prepare Your Business for Sale

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Preparing to Sell Your Business: Where to Start

When you begin considering the sale of your business, your first step in the process should be to identify your motivation, your goal, and any potential areas for concern. What are you hoping to achieve and what worries you about getting there? Are you looking to make a clean exit from the business, or are you willing to help the business transition into new ownership?

Your next step should be to engage with stakeholders. Who else needs to be involved in this process, and are they aligned with your position? Will they also be leaving the business?

To assist with these initial steps and the entire process of selling your business, we recommend that you also engage with your advisors early and often. It is far easier and more cost-effective to prevent issues than it is to correct them, and a team of legal and financial experts in this space will help ensure that the process of selling your business is hassle free. Lawyers, accountants, brokers and business advisors will guide you, foresee purchasers due diligence requests and requirements, increase efficiency, minimize risks, and maximize tax advantages.

Selling your business may be the single most important transaction of your life. The right support system will help make things as stress-free and smooth as possible.

Preparing to Sell Your Business: Who Will Buy Your Business?

Consider who might buy your business. There are typically three types of buyers:

  • Cash flow buyer

A cash flow buyer is someone interested in buying and operating your business to return a profit.

  • Strategic buyer

A strategic buyer is someone interested in expanding their existing business into a new geographical area, or a competitor who is interested in consolidating their competition.

  • Asset buyer

An asset buyer is interested in hard assets like equipment, human resources, or relationships.

If you’re emotionally invested in what happens to your business after selling, you may have a preference for the type of buyer you want to attract and work with.

Preparing to Sell Your Business: Improve the Value of your Business

As you prepare your business for sale, there are certain actions you can take to maximize its value and consequently the price a buyer would be willing to pay. These actions may include:

  • Getting rid of redundant or obsolete assets or inventory
  • Ensuring you have solid contracts with key suppliers, customers, etc.
  • Maintaining accurate, reliable, and meaningful historical and predictive financial information

Another aspect of improving the value of your business is structuring it so that it can run without your direct involvement. If you’re not physically present or maintaining daily operations, will customers continue to purchase goods and services? Are your systems and processes automated so that they can run without you? Can your staff manage their duties and responsibilities without your supervision? If your business can run independent of you, it will be more attractive to buyers. If not, you’ll likely need to assist in a transitional phase as new ownership takes over.

Selling Your Business: Bringing Your Business to Market

Consider your plan for promoting the sale of your business. How will you get the word out, and who do you want to make aware of your intention to sell? To achieve the best price, you typically need more than one interested buyer.

Working with a qualified business broker will ensure this stage of the process goes smoothly, and they’ll be able to assist with negotiations. Legal, financial, and business advisors will help ensure that you get the best deal and outcome possible according to your goals. They’ll also be able to ensure that you and your information are protected and cared for throughout the process.

There is no such thing as a standard deal or arrangement, just as there is no such thing as a standard business. It’s important that nothing is signed without first getting legal advice.

Selling Your Business: Structuring the Deal

There are typically two types of deals – asset and share. Share sales occur when a purchaser buys your shares in the corporation. Asset sales involve identifying which assets and liabilities will be purchased and which, if any, will remain with the seller.

Whether you are selling shares or assets, be clear about what that entails and what your intention is. The structure of the deal will depend on the needs and positions of the parties, and you should also consider the tax implications of your deal and how to minimize tax on the sale.

Selling Your Business: Learn More

You can watch Renee Gilead of Field Law and Darren Buma of KWB present the legal and financial considerations of selling your business in this webinar.

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