What does it mean to sell your business?
Selling a business is vastly more complicated than selling, say, a car. You can sell a business by selling shares or selling assets. The business’s structure may also affect the sale; that is, whether it’s a professional corporation, a regular corporation, a sole proprietorship or a partnership. Who you sell to can also affect how the sale unfolds.
Whatever the business’s structure or the type of sale, the key is to plan well in advance and get expert advice.
Preparing for the sale
Start planning at least two years before you anticipate selling. If you have a qualifying small business corporation, selling shares may be the best approach because you will be able to use your capital gains exemption of up to $835,000. The exemption becomes even more important if your spouse or children also own shares in the company because your family members will be able to use their own exemptions. So planning ahead may include distributing shares among family members to best advantage. Ensuring that your business meets the share ownership and asset use regulations for the exemption can take up to two years.
You may plan to sell your business’s assets rather than shares. Business assets can include real estate, stock, equipment, customer and supplier lists and contracts, and goodwill. If these elements have significant value, an asset sale may be best. The sale of assets will trigger corporate tax on the sale proceeds. The after-tax proceeds then go to shareholders as dividends. Buyers often prefer the asset sale approach because they may be able to select which assets they want.
Work with your accountant and other business advisors to project scenarios for different types of sales. Doing so will allow you to determine which approach has the most favourable tax consequences for you and others.
Tax on the sale of your business can be significant and so should be a major consideration in the planning stages. The longer in advance you plan for the sale, the better you will be able to minimize taxes payable.
Finding the best buyer
Start looking for a buyer close to home: family members, business partners, a group of employees, competitors, customers and suppliers can all be prospective buyers. Put the word out that you are preparing to sell. Advertise in business and trade publications. You could engage a business broker or a merger and acquisition consultant.
Consider what you want from the sale, if anything, in addition to cash in your pocket. Do you want a buyer who will carry on your family business legacy unchanged? Do you want the new owners to take it to greater heights in new fields of endeavour? Do you care? Think about this before you consider offers.
There are basically two types of buyers. Strategic buyers are interested in your business for the way it will enhance their existing business. Because they expect the new whole to be greater than the sum of the parts, strategic buyers will likely pay more.
Financial buyers want a stable, profitable company. They may view the purchase as an investment.
Serious prospective buyers will perform due diligence on your company, so ensure all corporate filings, taxes and other paperwork are up to date and fully comply with regulations. Have a business valuation done so potential buyers know what they’re dealing with.
Selling a business is a highly complex operation and is probably the most significant transaction in your company’s history, so take the time to go over everything with an expert tax advisor well in advance of an anticipated sale.