TWELVE ELEMENTS OF SUCCESS WHEN SELLING YOUR COMPANY
1. PREPARE EARLY AND THOROUGHLY
Success in selling your business starts with preparation. Begin planning at least two years in advance. This preparation involves streamlining operations, ensuring accurate and up-to-date financial records, and addressing tax, legal or compliance issues. A well-organized business is more attractive to buyers.
Furthermore, The Lifetime Capital Gain Exemption (LCGE) is a valuable tax benefit available to Canadian residents who sell shares of a qualified small business corporation. As of the 2024 tax year, the LCGE limit is $1,016,836. This means that if you meet the eligibility criteria, you can claim a lifetime exemption on the capital gain realized from the sale of your business, up to this limit. However, it is important to note that not all sales will qualify for the LCGE, and the eligibility criteria can be complex. Seeking professional advice from a tax specialist is essential to determine whether you can take advantage of this valuable tax exemption.
A common tax planning strategy to minimize the tax liabilities when selling is to effectively multiply the LCGE by having shares held by multiple related persons. A person is considered “related” under the Income Tax Act if they are blood relatives or are related through marriage. As such, family members are often transferred shares of the corporation to maximize the available exemption. When family members are under the age of eighteen, their LCGE is typically accessed by utilizing a family trust.
The taxation strategy discussed above allows a family to access multiple LCGE amounts on a single transaction. For example, a business with 100 common shares held by five family members, each holding 20 shares, would be able to exempt up to $1,016,836 X 5 = $5,084,180 of capital gains from the eventual sale of the business.
2. UNDERSTAND YOUR BUSINESS VALUATION
Knowing the worth of your business is crucial. Engage with a professional appraiser to get an accurate valuation. This understanding will guide you in setting a realistic price and negotiating effectively with potential buyers. Understand what drivers of your business will improve its future value and/or diminish its value as you continue to operate the business until its eventual sale.
3. ENHANCE YOUR BUSINESS’S APPEAL
Make your business more attractive to buyers by demonstrating steady income streams, a loyal and repeat customer base, and future growth potential. Improving key aspects of your business, such as customer service, marketing strategies, or operational efficiency, can increase its value. Keep current your industry affiliations, branding, web site, social media assets, advertising activity, and online reputation.
4. GET PROFESSIONAL ADVICE
Do not go it alone. Seek advice from accountants, lawyers, and Investment bankers who specialize in business sales. Their expertise can help you navigate the complex process, from valuation to negotiation and legal compliance.
5. MAINTAIN CONFIDENTIALITY
Keep your intention to sell, confidential, to avoid unsettling customers, employees, suppliers, and any other stakeholders. Use a standard form nondisclosure agreement from a M&A Lawyer with potential buyers to protect your business information.
6. MARKET YOUR BUSINESS EFFECTIVELY
A marketing strategy is essential to attract the right buyers. Engage the expertise of an investment banker to draft and execute on the right marketing strategy for selling your specific business.
7. BE READY FOR DUE DILIGENCE
Buyers will thoroughly investigate your business during the due diligence phase. Be prepared with all necessary documents, including financial statements, contracts, and employee records. Transparency and organization during this phase can build trust and expedite the sale process. Invest in your Internal Accounting and Reporting resources ahead of any sales process.
8. NEGOTIATE STRATEGICALLY
Understand the buyer’s motives and be clear about your own priorities, whether it is the total sale price, the structure of the financial considerations and other the terms of the deal, or other specific and personal conditions. Effective negotiation is about knowing what you want, and the other party wants and finding a win-win situation for both parties.
9. PLAN FOR POST-SALE TRANSITION
A smooth ownership transition is vital for the continued success of the business. Be prepared to stay involved as part of the leadership succession and ownership transition plan. This willingness can make your business more appealing and may even be a deciding factor for some buyers.
10. CONSIDER YOUR OWN FUTURE
Selling your business is not just a financial decision but also a personal one. Consider what you will do post-sale. Whether it is retirement and what that will look like for you, starting a new venture, or pursuing other commercial, philanthropic, familial, health or other interests, having a plan can make the transition easier for you personally.
11.HAVE A VISION AND EXECUTE FOR SUCCESS
While the market for selling a privately owned business remains strong, it is important to know your goals for a transaction and to think through the process thoroughly to achieve a sale. Selling your company successfully often requires planning far in advance of seeking out buyers. Avoiding pitfalls such as not having clean documentation and established processes to make your business a marketable and transferable asset is critical to maximizing what you can earn from your sale.
12. DON’T DO IT ON YOUR OWN
It is important to consult professional expertise to guide you before you settle on your final vision and through the complex marketing, vetting of potential suitors, negotiations, legal, financial, human resources, and tax implications that your business sales process entails.
ABOUT THE SHAUGHNESSY GROUP
We founded the Shaughnessy Group in 2017 with the purpose to help business owners successfully transition out of their most valued asset, their privately held, lower middle-market company. Since our founding, our clients have asked us to aid them beyond the sale or divestiture of a division or business, to help them to grow through acquisition and source debt to fund their acquisitions. www.shaughnessy.group
ABOUT THE AUTHOR
Karl Sigerist is an advisor to shareholders, board members, owners, entrepreneurs, and executives; on governance, strategic and corporate finance issues through the business life cycle; buying, financing, and selling their business.
Founding member of 8 start-up organization within the public/private investor community and 3 turnarounds of Canadian and European private/public organizations.
Led the growth of business-to-business technology, specialty finance, warranty, and creditor insurance organizations through 3 mergers, 38 acquisitions, 34 strategic alliances $965MM of capital raises and 5 digital transformations into leading national brands and platforms.
Fostered cultures and teams that achieved Growth 500 status for five consecutive years and Top 100 Small & Medium Enterprise Employer honors for two consecutive years.
Mentor to business school students and newly immigrated Canadians on their personal and professional growth. Volunteer on not-for-profit boards.
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