Buy or Lease a Vehicle?
Selling Your Business
Planning to sell your business? Start soon and you can simplify the selling
process, negotiate a fair price, and leave your business in good hands.
"Selling your business is like getting your house ready to sell," says Chartered
Accountant Robert Sproule, Founding Partner, R.I.Sproule and Associates Ltd., in
Ottawa.
"Just as you tidy your house to make sure it shows well, you should also get
your business ready to sell by ensuring that the your financial statements are
tidy, accessible and straightforward. Then a purchaser can see the true worth of
your company."
Chartered Accountant Jack Hertzberg, Partner with Harris & Partners, LLP in
Markham adds that a key part of this activity is normalizing your cash flow.
"Assess all your expenses to make sure they conform to industry standards and
market realities. This may involve highlighting expenses for the purchaser that
may not appear in the financial statements of similar businesses, such as
bonuses paid to the owner above market, as well as excessive vehicle, promotion
and entertainment expenses."
What else should you consider?
"Once you've decided to sell, you should start your planning early, as much as a
year or two ahead," Sproule advises.
"This gives you time to do more housekeeping, such as making sure your
accounting system is efficient. You may also want to cull your client list, and
perhaps add a couple of new clients.
"You can also check the market and identify a potential purchaser, who may be
one of your competitors or perhaps a business that is interested in expanding to
your location. Remember that if you use a business broker or consultant to find
a purchaser, you will pay a fee for this service," explains Sproule.
"Planning also allows you to let key employees know your plans and perhaps offer
them an incentive to stay for a certain period after the sale closes. You also
have time to deal with something that is common to many owner managers—a
reluctance to let go. A business has asset value and the self-esteem value of
the owner, who has built it from scratch, may not see its true worth."
How do you determine the selling price?
"The selling price is usually based on a certain framework that varies with each
industry," describes Sproule.
"Value is generally based on the percentage of business that the purchaser can
retain. The vendor wants the highest possible value for goodwill, paid on
closing, while the seller strives for the lowest possible percentage, paid over
time. After that, it's all negotiation."
Hertzberg offers more tips for would-be sellers.
"Tax-planning is a key consideration. This lets you know in advance how much of
the proceeds from the sale will be available net of taxes. A Chartered
Accountant will help you determine the best tax strategy for structuring the
sale and brings objectivity to the process when emotions run high.
"If you have a franchise, make sure you understand your rights when it comes to
selling the business. For other businesses such as restaurants or day care
centres, find out if there are any regulatory provisions for transferring and
getting clearances from the relevant government departments."
"In today's sophisticated environment, you should exercise caution in giving out
too much information about your business, to protect it in case this information
falls into the hands of your competition. You may also want a non-disclosure and
confidentiality agreement in place before releasing confidential information,"
cautions Hertzberg.
"Once your business is sold, you may be required to stay on during a transition
period. This allows you to introduce the new owner to your clients and key
customers. This is especially important in a service business, where loyalties
to a particular individual are critical and the selling price is based on
clients and retention."
Is there a good time to sell your business? "Yes," says Hertzberg.
"Timing is everything. Some businesses have a seasonal cycle. It's also smart to
time the sale either before or after major renovations. If your business is
location dependent, sell it once you have a new lease or franchise term."
Both Sproule and Hertzberg agree—there is no foolproof way to sell your
business.
The reality check is what the market will pay, so plan ahead to maximize the
value of your business.
For further information, contact a Chartered Accountant.
Brought to you by the Institute of Chartered Accountants of Ontario.