Getting Ready To Sell Your Business…Before You’re Ready To Sell Your Business
Those who fail to plan, plan to fail.
Proper planning prevents poor performance.
We’ve all heard these and similar adages. They apply to many aspects of life, but can also apply to the sale of a business. Preparing a business for sale is a complex and lengthy process which takes many business owners by surprise. Others may be surprised at how the state of a business’ affairs can mean the difference between securing a buyer and scaring one away.
There are, however, several simple things you can do to prepare yourself even before you’re contemplating a sale.
1. Keep records in order and up to date
The first thing a potential buyer will want to see is your records. These include minute books, major agreements, leases, permits, financial records, and the list goes on. Waiting until you want to sell (or need to, due to an unexpected life event) to start gathering records from dusty corners can create unnecessary delays in the transaction timeline. Similarly, a minute book containing no records since 1994 could be a red flag that you are either unorganized (leading a buyer to believe that your business was not well-run) or that you haven’t been operating in compliance with the law.
Keep your records organized and know where everything is. Better yet, scan and save them to a master file so you can quickly provide them when the time comes. Also, use your lawyers as registered office to ensure your minute book is kept up to date.
2. Know what’s out there
Potential buyers will conduct thorough due diligence on your business by searching the records of courts and employment, taxing, health & safety and other authorities. Claims made against your company to these authorities, or matters such as missed filings will be revealed by these searches.
This is not to say you will never sell your business if you missed a filing or a claim was made against it. The key is that you deal with these matters as swiftly as possible when they arise and that you know what is in the public record. Being surprised by what a buyer uncovers might suggest you are not in control of your business.
3. Structure of your business and the sale
Educate yourself on the difference between a share sale and asset sale. While it won’t be possible to choose the structure prior to a sale, it can speed up negotiations if you understand the legal, tax and other pros and cons of each ahead of time. It may also prevent you from entering into an agreement using a particular structure and then learning the impact of that decision.
Determining the most beneficial corporate structure is something that can be considered in advance of a sale. Consult your advisors to review options for reorganizing to maximize tax benefits, or talk to them about how your unanimous shareholders’ agreement will impact the procedure for a future sale.
4. Good advisors
The importance of having a good team of advisors cannot be overstated. Yes, it will cost you money, but it should save you more in the long run. Build a team of people you trust and let them talk to one another. This will lead to more comprehensive plans for general operations and set the foundation for a sale.
5. Consider a succession plan
This one isn’t as simple as the above tips, but is at least something to think about. Perhaps you have an employee or employees that may be interested in taking over your business. If you’re that lucky, get a plan in place before you want to step away. Think about a stock option plan – it gives the employees “skin in the game” and is therefore a good retention tool. You can also sell your shares slowly over time, allowing you to step away at your own pace and pass on your valuable knowledge (just make sure your advisors set you up with proper agreements to protect you during the transition).
The moral of the story is be proactive and be organized. The above tips won’t guarantee that you will sell your business the minute you decide to step away, but they certainly can’t hurt. They may be the difference between securing and losing a buyer, a higher and lower sale price, or a cluttered and drawn out sale transaction compared to a smooth and efficient one.
This article was originally published in SaskBusiness magazine and is reprinted with their kind permission.