Selling Your Private Enterprise? (Part 1)
For most business owners, there will come a time when you decide to sell your business, whether it is in preparation for retirement, trying out a new career path, or for financial reasons. Whatever the trigger is, the process can be stressful, from when you decide to when the deal is signed. This is often the most important junction in many entrepreneurs’ careers.
Though it may seem counter-intuitive for a start-up to be thinking about exiting your business, through experience, we have learned that it is never too early to think ahead. No matter what stage of growth your company is at when you decide to sell or how it is performing, you want to make sure to get the best price on the fairest terms and leave your company and employees in good hands.
In this two-part blog series, we will go over some things that are imperative to consider before you sell your Canadian Controlled Private Corporation (CCPC).
As we said at the start of the article, there are many reasons you may want to exit your business: you could be nearing the age of retirement, be looking for a new direction or just trying to capitalize on market conditions. Regardless of the reasoning, when planning an exit, it is critical to start the process well in advance of the date you want to move on. In our experience, in fact, you should start the process no later than 3 years before you actually plan to close the deal.
Keep in mind that the timing of the sale can affect the sale price and the tax implications. For example, if you sell your business during a recession or a downturn, you will receive a lower valuation. You may prefer to wait for the economy to rebound so the valuation goes up but may not have an idea of when that is likely to be. You will also have to consider upcoming or proposed legislation that could seriously affect you and your earnings, which is where a tax specialist comes in – they are likely to be extremely tuned in to any shifts on this front.
As timing is critical, being prepared in advance and ensuring you are not forced to sell will be key.
It is impossible to make the best decision for your company and yourself without knowing the true value of your business. To this end, hiring a Chartered Business Valuator (CBV) can help you get a clearer picture of the market worth of your company and ensure that you have a benchmark against which to evaluate all offers. Determining the fair market value of your business regularly will help you understand its worth, which will drive aspects such as share price for a potential IPO, how to price your options or an adequate sale price. Performing this exercise early in the process can help identify areas where you can improve your KPIs, and as a result, increase the value of your business before selling.
3. Identify a Buyer
Once you have decided that you want to sell or take some money off the table, the next step is to identify a buyer interested in purchasing your business. Having an M&A advisor to handle the selling of your business will show value in this stage as an advisor will be able to research and identify a wide list of both strategic and financial buyers such as private equity firms.
Importantly, an M&A advisor will work to understand your needs to find the right buyer. Finding the right purchaser that is a strategic fit and aligned with your interest will impact how the company is going forward, such as your role post-transaction as well as the culture for employees.
An M&A advisor will be able to analyze and identify the types of purchasers who can pay premium valuations as well as how serious the buyer is to mitigate deal risk, such as if the buyer has the financial ability to close the deal and their true interest in your company.
Most often, an auction-style process provides the best terms and highest prices and may be the best option possible.
4. Offers to Purchase
No matter how much you plan, it is not unusual for you to receive an unsolicited offer to purchase your business when you did not intend to sell. This may be especially true for companies that are projected to do well, have a high public profile, or are in a “hot” industry such as AI. These purchase offers can be flattering and tempting, but it is important to thoroughly evaluate the offer and the implications of an unexpected sale before you respond.
You can learn more about how to respond to an unsolicited purchase offer and the things you might want to consider when making that decision here.
5. Clean Up
A minimum of five years out from the deal is when you want to start cleaning up the organization. This includes making sure that all the financial statements and legal documentation are in place, which is where tax and financial advisors can play a critical role. For example, you will need to make sure that all your tax filings are up to date.
For newer companies, it is better to put in place these industry-leading hygiene practices early on, so that you can ensure your business is growing with an eye on the target. Making these considerations the bedrock of your company from the outset just means you won’t have to revisit them in the future.
Remember, as well, that the larger your business and the less traditional your organization structure, the more ‘I’s and ‘T’s there are to dot and cross.
Throughout this entire process, it is imperative that you have the right advisors to help you understand all your options so you can maximize the benefits to you. You will also need to focus on keeping your business functioning efficiently and performing well to attract more buyers. A qualified expert can handle these issues behind the scenes and leave you to focus on your business.
If you are planning to sell your business or simply evaluating a potential exit strategy for yourself, please reach out to our team today.