5 Tips for Selling Your Business Smoothly
The trend of baby boomers heading into retirement is also signaling a major shift in Canadian business ownership with many small businesses coming to market or exchanging hands. Cyril Cochrane, Managing Director, Growth & Transition Capital, BDC Ottawa recently wrote about the dos and don’ts for SME owners who are planning to sell their business. Here are five important tips to help ensure a smooth transition while maximizing your hard-earned return on investment.
Consider more than just price when choosing a buyer
It seems counterintuitive to think about accepting anything less than the best monetary offer on the table, but Cochrane points out that there is more to consider than just the bottom line. “… [T]he type of buyer you find can impact the outcome of the transaction, including the purchase price, how much cash you receive at close versus what you may have to defer, as well as the success of the business following the transaction.”
When planning to sell to a family member or someone inside the business, keep in mind that while they may not be able to provide as much upfront cash on closing, in general, the transaction may be less disruptive to the continuity and ongoing success of the company. Alternatively, selling to an external buyer will likely get you the best price. And if multiple offers come in, you will be able to choose the best-fit buyer for the company—ideally best fit will also come with the best price.
Make sure the succession plan will succeed without you
Starting and maintaining a successful business requires an enormous personal investment of not only time, money, and hard work, but also the considerable emotional investment that comes with nurturing something from the seed of an idea to successful fruition.
However, when the time comes to move on and relinquish control to someone else, potential buyers will be wary if the business relies heavily on or cannot function without the exiting owner.
Start by systematizing and documenting processes for all operational tasks and invest in appropriate training and development for your leadership team. An effective succession plan empowers your team so that day-to-day operations run smoothly without you.
Gather documents to help facilitate the due diligence process
You would never purchase a home without having a formal inspection or reviewing the financial documents of the condo board first. It’s no different when buying a business. Potential buyers will want to take a good look at what’s under the hood before committing to the purchase, so you need to be ready.
Examples of some of the documents you should make available for review include a detailed list and description of assets, financial statements, minute books, customer and supplier contracts, employment contracts, and outstanding and contingent liabilities.
In addition to preparing due diligence documents, Cochrane recommends sellers “… prepare a confidential information memorandum (CIM) that provides a high level summary of the business to interested buyers. Also consider setting up an electronic data room that qualified, interested parties can use to go over your due diligence documents.”
Being organized and prepared helps instill trust and confidence, and paves the way for a quicker transaction.
Facilitate a smooth transition from start to finish
Again, it seems strange to think about planning your exit in the early days when you’re simply trying to get things off the ground, but in reality, it’s never too soon to start your succession plan. It might be as simple as including shotgun clauses in your shareholder agreement to help lay the ground work for selling the business between shareholders. The more preparation and organization you can do in advance of your planned exit will mean fewer headaches or damaging disputes when the time comes to sell.
Be conscious of what you need to do to ensure nothing stands in the way of a painless transaction. In addition to having pertinent documents ready for due diligence scrutiny, be supportive of external lenders and investors. Cochrane explains: “…[T]hink of it as a partnership and work closely with the buyer to help them get the financing they need to realize the sale.”
Enlist expert help
Selling your business may be the most significant transaction in your life, rivalled only by the sale of a home. In the case of buying or selling a home, the process is simplified if you have a great team—including a mortgage professional and a reputable Realtor—helping you along the way.
Consulting regularly with experts including banking and financial advisers, your accountant, and your lawyer will help get you through every step of the business-selling process. It may also be beneficial to hire a consultant who specializes in business successions or mergers and acquisitions.
Facilitating the successful sale of your business takes careful planning and organization, expert guidance, and patience. But it will be worth the effort when you find the right buyer and negotiate a smooth sale that earns you a fair price while ensuring the longevity of your business for years to come.