If you are a small business owner thinking of exiting your current business, there is a process of how to sell a company that you should be aware of, at a high level. This article is a brief overview of the sale process. Consult with your professional advisors or a business broker for more information specific to your situation.
Find A Business Broker
You should contact a professional that works in business brokerage to assist you. A business broker can tell you about the current market conditions and what he or she thinks your business is likely to sell for. A business broker or business intermediary is a professional that sells businesses.
Decide What Is For Sale
Most small businesses sold in Canada are structured as “asset sales” versus “share sales.” There is a very significant difference that you should be aware of. In an asset sale, the actual corporate entity is not sold, only the assets of the business. In Ontario, an asset sale is usually governed under the Bulk Sales Act that you should discuss with your lawyer to fully understand what your obligations are. In a share sale, the actual legal company is sold to the buyer. There are legal recourse differences and major taxation differences depending on which option is undertaken. It is best to discuss with an attorney and accountant to determine which is best for you.
Determine a Selling Price For Your Business
Before you list your business for sale you will need to decide on a listing price. Your broker or a business valuator can assist you with this. It is important to have a price that is fairly close to the market value of the business. An improperly priced business will be challenging to find a buyer for.
Marketing Your Business For Sale
Your business broker should come up with a marketing plan to advertise your business to a broad pool of potential buyers. These prospective buyers must be screened in order to qualify them. A good business broker will screen interested buyers on three main criteria: financial ability, aptitude and willingness to complete a purchase. The key to marketing your company for sale is that is be done discreetly so as not to let employees, customers or vendors know that it is up for sale.
Showing the Business
After an interested buyer has been screened, they are then usually invited to sign a non-disclosure agreement. After an NDA has been signed they are typically presented with a high level business summary then a viewing of the business. At the business viewing, the buyer and seller may meet and it is a time when the buyer can as the seller some questions directly about their business.
Negotiating an Offer To Purchase the Business
After reviewing a business summary, viewing the business and meeting with the owner the prospective buyer is next invited to present an offer to purchase the business. The offer this is presented is usually is usually conditional. Normal conditions include the buyer obtaining acquisition financing, assignment of leases and due diligence. A business broker can be a good intermediary while a purchase offer is being negotiated by the two parties.
Conditional Period of a Deal
After a conditional deal has been agreed to then the deal enters into the conditional period. A buyer now usually conducts due diligence and works to satisfy themselves on the other various conditions. A good business broker will work to keep the deal moving and ensure that the lines of communication are open.
Closing the Deal
Once the buyer is satisfied and waives the conditions on the deal, the next step is to close the transaction and complete the sale. The entire process of how to sell a company can be relative smooth but also has the potential for misunderstanding if the transaction is not properly managed. Working with qualified business brokers can greatly increase you chances of having your business sold.