You’re thinking about selling your business, but don’t know where to start. How much do you need to sell your business for to sustain your lifestyle? How do you determine what your business is worth? What do you need to do to ensure you are getting the right value for your business? How do you choose the right buyer to ensure what you’ve worked to build over all these years will continue to grow once you are no longer involved?  

Preparing a plan to sell your business is an essential first step in maximizing the value that you can get for your business. In a recent study, 88% of business owners did not have a written transition plan in place and 66% had no plan at all.  

BluePrint CPAs helps entrepreneurs in Windsor-Essex, London, Hamilton and Toronto grow their businesses and ensure that staff are well trained and engaged to maximize the financial value of their business.  

Below are the questions you need to answer in order to sell your business to the right buyer.  

"What you lack in talent can be made up with desire, hustle, and giving 110% all the time."— Don Zimmer

When is the Right Time to Sell My Business?

The first step in selling your business is getting the timing right. Business owner readiness is a key factor in this. Are you ready to sell your business? Have you made all the considerations in your personal life? Business owners that are very active in the current operations of their business should consider how the business will look once they leave. If a business owner is willing to stay on to help with the operations and transition once the business has sold, this may add more value to the buyer.  

Secondly, a company is typically more attractive to a buyer if it has a clear competitive advantage, an established customer base and a strong management team. If your business is missing even one of these components it can negatively impact the value of your company.  

Finally, in assessing if the timing is right for you to sell your business you must look at the current merger and acquisition (M&A) market conditions. When assessing the current M&A market conditions you must look at the economic environment and the current state of the industry. Favourable conditions mean an increase in the number of active buyers and an increase in the amount they are willing to pay.  

How Do I Prepare to Sell My Business?

Determining if your business is in the best position possible, performing a pre-sale assessment of your business is important to secure a deal. Make sure that you have a functioning corporate structure in place. Set up your business for success by creating standard operating procedures, having a strong management team, and building a strong customer base.  Next, planning your personal income tax and estate planning can help to generate considerable tax savings in the selling process.

The final step in preparing to sell your business is surrounding yourself with the right talent to do so. Using transaction advisors such as investment bankers, tax specialists, and legal counsel can help you to secure the right deal.  

What is My Business Worth?

Understanding what your business is worth is a critical part of the sale process. You don’t want to leave money on the table, and you don’t want to price yourself out of a good deal. To determine the value of your business, you must understand more than your current cash flow, but what your future cash flow will look like.  

Secondly, you must identify what your valuation multiple is. The valuation multiple is a numerical value to the risks and growth prospects of your business. Finally, understanding your balance sheet position is necessary to evaluate your current debts and net operating assets. To increase the value of your business and your assets, focus should be made in increasing the intangible assets of your business.  

How Do I Find the Right Buyer?

The next step in the planning process is finding and engaging with the right buyers. Identifying qualified buyers involves understanding what values you want the buyers to have and includes considerations on whether their values align with yours.  

Buyers could be stakeholders that your business has built a relationship with such as employees, customers, or suppliers. A buyer could also be a private equity fund. Developing a strategy and conducting research into potential buyers is an important step in this process.  

After determining who your potential buyers are, you must initiate initial buyer contact and execute a non-disclosure agreement (NDA). Initial contact with a qualified buyer means identifying the proper contact and capturing their interest. Providing potential buyers with a “teaser” sheet to give an overview of your business can help to do this. Executing an NDA is an important part of this process to ensure all sensitive company information is protected.  

What Information Do Buyers Want to Know?

Once an NDA is in place, buyers will be able to receive confidential information about your company to help them understand if it is the right investment decision for them. The information that should be given to buyers at this stage include a confidential information memorandum (CIM), a data room, and delivering a management presentation.  

Providing a prospective buyer with a CIM gives them information about the company’s operations, including your history, management team, products/services, financial results, etc. This is the first step in the buyer’s assessment to consider if they are interested in moving forward.  

The next step giving the buyer access to a data room, which is a secure internet site for them to access the company’s detailed financial and operational information including major contracts, customers, technology, etc.  

Finally, members of the senior management team will need to deliver presentations about the company’s operations, risks and finances to give the buyer a full understanding of what they are purchasing. It is important that during this process you are evaluating the buyers to understand where there are potential synergies with their current business and if they are right for the organization.  

How Do I Structure a Deal?

Now that you have found the right buyer, you must determine how to structure the deal with them. Typically, buyers will want to structure the deal and acquire more assets for the potential income tax savings. However, the seller will typically prefer shares to reduce the taxes payable on the sale. You will need to work with the buyer on this to determine what is a mutually beneficial split.  

Once this is determined, you must agree to the forms and terms of payment. Rarely will the purchase price be paid entirely in cash at closing. Forms and terms of payment can vary from holdbacks, promissory notes, share exchanges and more. Determining the right deal for you will be something to manage on a case-by-case basis.  

If you’ve been an active manager within the organization, the buyer may want to retain you for a smooth transition. Determining the management contract paid to you in this process is another consideration and the contract may incorporate a portion of the purchase price.  

How Do I Negotiate the Right Deal?

Now that you understand what must be considered in structuring a deal, how do you negotiate to get the best deal for yourself? You must prepare for negotiations by conducting research and analysis into the industry, your company and understand what the buyer wants.  

Once you have the research necessary for the negotiation, develop negotiating strategies and tactics. Think about what the buyer’s needs and desires are and what alternatives they have in developing this strategy.  

Once a tentative agreement has been reached, signing a letter of intent helps to set out the framework of your deal and ensure that all expectations are met. It is not legally binding for the sale, but it gives the buyer a granted period to do their doing their due diligence and finalizing the sale.  

"Innovation distinguishes between a leader and a follower."— Steve Jobs

How Do I Close the Sale?

Closing the sale of your company involves the buyer doing their due diligence of your company and its operations. This involves a comprehensive overview of all of your business operations and determine if the proposed deal is satisfactory.  

Once the due diligence process is complete, a purchase and sales agreement is drafted and signed by both parties. This will typically include other agreements such as non-competition agreement and a management contract. Once the purchase and sales agreement is finalized, the closing date allows for any last-minute negotiations or unexpected issues to be addressed and is normally followed by a final audit.  

Why Use an Advisor to Help Sell Your Business

Properly planning and preparing your business for sale should be a 3-to-5-year process. Using an advisor can help you to ensure you are getting the best deal possible. The planning phase of this process is perhaps the most important part of the strategy as it helps you to properly structure your business and maximize its value.  

BluePrint CPAs helps entrepreneurs maximize the value of their business by working with them to structure their business operations, finances and HR practices. Book a consultation today.

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