You’ve done your homework, thought about your future, and decided to sell your business. Now that you’ve made up your mind, preparation is the key to making your business attractive to potential buyers. Follow this 6-step checklist for a smooth transition.
1. Prep for the sale
This is like staging your home before you sell it. Get rid of the operational clutter that might discourage a prospective buyer.
✓ Clear up legal issues
Clear up any unsettled legal issues. No one wants to buy hassles.
✓ Get rid of bad assets
Sell anything that will be a burden to the new owner, like obsolete or damaged equipment.
✓ Trim the fat
Start reducing unnecessary or extravagant expenses to widen your profit margin.
✓ Clean up, literally
Apply a fresh coat of paint and make sure everything is in working order. Staging works for residential sellers and it can work for you too.
2. Determine what your business is worth
There are many ways to estimate the value of your business. They are all effective and some work better than others based on the type of business you own and how complicated it is to evaluate. Your Meridian Business Advisor can help you understand the most common forms of business valuation <link TBD: GS: How to evaluate the worth of your business>.
3. Know what you want
Your own plans for the future will affect the buyer of your business. They’ll need to know how you expect to be paid and whether or not you’ll have a role in the future of the company.
✓ Decide how much you want
It sounds obvious but you need to know what you’ll accept in case an offer comes quickly and the buyer wants to close fast. This is why you need an accurate business valuation.
✓ Define the terms of the sale
Decide whether you are selling your shares or transferring ownership completely.
✓ Spell out the timing of payment(s)
Let the buyer know if you are open to a payout deal, where you receive partial payment upon the sale of the business and then an ongoing salary or bonus.
✓ Be clear about your role in the transition
Decide whether or not you are willing to stay on as a consultant, coaching the new owners until they can take the helm. Likewise, make it clear if your intention is to walk away right after the sale.
✓ Pick a structure for the sale
Work with your dream team of trusted advisors to decide if you want to walk away with a cheque, sell your shares in the company, or structure a long-term buyout where you stay involved in the business during the transition phase.
4. Build your business-selling dream team
Before you announce your intention to sell, talk to your Meridian Business Advisor about the kind of experts you may need to enlist.
✓ Get your dream team in place
You’ll need a lawyer and professional business valuator to start. If you don’t have one already, it’s also good to engage:
- A financial planner
- A tax expert
- An accountant
- A business broker
Learn more about building your dream team.
✓ Prepare confidentiality agreements
Make sure everyone you talk to signs an agreement. You don’t want your customers and employees finding out from someone else that you plan to sell.
✓ Talk to key employees
If your have key employees who may be able to help with the sale or improve the purchase price, discuss your plans and ask for input. Find out whether they are willing to work for the new owner and help keep the business running smoothly.
5. Get ready to meet prospective buyers
Whether you work with a broker or advertise your own sale, here’s how you can prepare to impress prospective buyers.
✓ Identify your ideal buyer
It’s easier to market your business when you know what type of person is most likely to buy it. A business broker works like a real estate agent and knows how to do this. They can help you find prospective buyers.
✓ Organize lease and rental paperwork
Have a copy of leases and rental agreements available, including terms for renewal.
✓ Gather warranties and service contracts
Include the details of warranties on equipment and the status of any service and maintenance contracts. It helps the buyer project long-term costs.
✓ Disclose financial status
You don’t have to share every detail but you need to disclose your financial status and show three years of history.
✓ Explain any major changes
If you made any big changes to the way your business operates or you sold off assets, be prepared to explain why. Big changes can be a red flag for buyers.
✓ List your company assets
Your asset list includes everything that comes with the purchase of the business. Valuing those assets is subjective and you should be able to show how you arrived at the numbers.
✓ Specify intellectual property rights
This becomes critical if your business is selling the rights to patents or trademarks.
✓ Licences and permits
If you secured special rights to conduct business (access to resources, for example), you should disclose those.
6. Finalize the sale
With the right preparation, the day will come when your effort pays off and you get the deal you want. Your dream team will be there to help you finalize the paperwork and embark on your next chapter.
To learn more about Meridian and how we help Canadian business owners succeed, get in touch with your local Meridian Business Advisor.
Learn more about business transitions
Is this the right time to sell your business?
Exit strategies for selling your business
Deciding if you should you sell your business