June 19th, 2011 by admin

Selling a business is neither an easy choice, nor an easy process once the choice has been made. In this article we try to cover some of the fundamental stages involved in selling a business.

To start with the seller needs to be sure that they want to sell a business. Many times sellers go through all the stages spending a lot of time and effort and money only to realise that selling is not what they want to do, pulling out of the sale. Be sure as a seller you understand why you want to sell.

The seller should get the business valued by professionals. Knowing what the true value of the business is puts the seller in a position to make better decisions resulting in a quicker sale for the correct price. Overvaluing the business just like overvaluing a house may result in no sale and no interest. Undervaluing may result in a quick sale but at the expense of selling the business out short. Again the criteria to use really will depend on the personal situation of the seller, i.e. how long they are prepared to wait for a sale and for what reasons.

Once a potential buyer has been located, the detail of the sale begins. To start with an agreement has to be made by the buyer and seller (Called the heads of terms) so that the framework of the sale can be agreed, i.e. price, time scales, and pre and post sale criteria that need to be met. Also it is an opportunity for both the buyer and seller to put in penalisation and confidentiality clauses to protect against the fact that the other party is not just snooping and is actually serious about the sale if all terms are met. This is especially important to the seller who wants to ensure that after divulging all the confidential details of their business to the buyer, the buyer just doesn’t pull out of the sale and use all the information learnt to their own advantage.

The buyer will want to confirm that what the seller has said about the business is true. There are two parts to this confirmation process known as the due diligence process.

Part one is accounting due diligence which means that the seller will need to provide the buyer with all accounts for at least the last financial year so that the buyer can verify turnover, profit etc. If the figures don’t match up then the buyer could pull out of the sale.

Part two is legal due diligence where contracts against the business on sale are checked, tax and vat and other liabilities are considered and generally all legal claims which could arise against the business on sale are considered. The terms and conditions of the sale and any restrictions and constraints against the seller and any guarantees of the seller are determined. Essentially the buyer is trying to ensure that once they have purchased the business there is nothing that could affect the smooth running or financial standing of the business on sale and if there is anything, then the buyer should know about it before purchase, because it could affect the buyers decision to purchase.

The details of how complicated the legal due diligence becomes is very much dependant on whether the business on sale is for the whole business or the assets and goodwill of the business.

To ensure that all stages of the sale go well there should be clear and open communications between the buyer and seller, and under no circumstances should the communication go between buyer to buyers legal counsel, to seller legal counsel and finally to the seller and vice versa. Legal counsel should advise individual parties and only deal with each other on specific legal matters.

Once the sale is complete and the seller has received his money, the seller will most probably be involved with the buyer for a period of time helping the buyer to take the business on board in a seamless manner. This is usually called the handover period.

To conclude, if both the buyer and seller are honest brokers and represent the details of the sale clearly and concisely from the very first, then there is no reason why the sale should not progress through with the minimum of pain.

Business, Selling

June 18th, 2011 by admin

Baby boomers who own businesses and are looking to retire often look within their own personal networks first when considering selling a business.

People often have an urge to deal with someone they know when it comes time to sell their business and many times the idea of selling a small business to a family member may seem like a logical choice. Sometimes the transaction goes smoothly and there are no complications. Sometimes, however, the deal adds significant pressure to a relationship and things can go wrong very quickly.

This article will explore some of the negative consequences of selling a company to a family member because people usually don’t consider the worst case scenario often until it’s too late.

Determining the Selling PriceSelling your business to a relative may seem like you’re really being efficient. The search to find a buyer is not required, there is no business for sale listing and the general inconvenience of the entire business sales process is avoided. However, the “pain” to find a business buyer also usually results in the market determining the ‘true’ value of the business from two unrelated or unaffiliated parties dealing at an arm’s-length.

If you sell a business to a family member, are you truly dealing with a buyer who is at an arm’s length? Also, without showcasing the business to several buyers, how do you know that the value you are getting as the seller is maximized? Determining the sell price of a business can be very difficult if the business is not properly listed.

Negotiating the DealSuppose the buyer (your relative) offers certain deal points, such as an aggressive vendor take-back term or an onerous training period. How willing would you be to aggressively negotiate with them? If you were dealing with an unrelated party, you may be more inclined to negotiate more intensely. If you ‘hold back’ on negotiating with a relative as aggressively as you would have, it is possible that you will not get the full value for the business sale.

Suppose the Business Fails after the SaleImagine a scenario where you sell a business to a relative and the venture suffers after they take it over. Perhaps they don’t possess the same work ethic as you, don’t have the same expertise in the operation or maybe they are unfamiliar with the area. Example – if you sell to someone from Oakville or Burlington and you own a Toronto, Ontario business then it is quite possible that they don’t know the market well enough to be effective. If the business does suffer after the sale, that could put an enormous strain on the relationship – which leads to the next point.

Are you Prepared for Damaged Relationships?If the business does not go as planned after the sale, there is the potential for resentment. The business does not even have to lose money, per se, for the relationship to suffer. Suppose, for instance, that the business requires more work than was initially imagined or that the new owner is not as happy as he or she assumed they would be. Prepare for the worst.

If you are ready to sell your small business please consult with a business broker to learn about your options. Doing business with family needs to be very carefully considered before you make a final decision because there are many potential negatives you can encounter.

Business, Selling

June 17th, 2011 by admin

When you decide to sell a business, it is important to determine a fair selling price but you, as the business owner, must also have a fairly good grasp of the other costs involved in the sale.  An accountant and lawyer should certainly advise you on these issues.

Here are a few other costs to keep in mind though when you are selling a business.

Taxes
After you sell your business you may be responsible for paying some taxes to the government.  You will likely have to pay provincial taxes to Ontario as well as Canadian federal taxes.  Your accountant can go over tax differences such as income taxed at the personal income tax rate and capital gains rates.  Also, there are some very important differences depending on if you sell assets in your company or the deal is structured as a share sale.  If your business is owned by an Ontario limited company then how earnings or sale proceeds are taken out of the corporation should be examined as well.

Employee Severance Costs
If you own a business that you are selling that has several long-term employees there are some important issues you need to discuss with your lawyer.  You may be obligated to pay for the severance of your staff up to the date of close.  Depending on the number of employees and how long they have been with the company, severance can be costly.

Business Brokerage Commission
Selling a small business in Ontario through a business brokerage professional usually means a commission rate in the 10% range.  This would be subject to GST (and HST once implemented).

Legal, Accounting and other Professional Fees
From before the time you list your business for sale, you should engage the services of a lawyer and accountant to help you through the transaction.  These professionals are important in order to advise you and protect you through the sale.  A reputable business broker should not have any issue with you working with advisors.  In fact, if the business broker does take issue with you engaging an accountant and/or lawyer, you should find yourself another business broker to help you sell.

Debt
If you have any debt (such as loans, leases or lines of credit) on your business, these (may) need to be paid off at the time of sale – depending on what is being sold, of course.  If this is the case, there may also be some costly breakage fees you might be liable for.

Training the Buyers
If you sold a business and as part of the deal you agreed to train the new owners ‘pro bono’ for a period of a few weeks, this represents a real cost to you.  This is time that you may not be working or generating any additional income.

Relocation
Many business owners sell a business and find that this triggers a move in their personal life as well.  For instance, owning a business in the Greater Toronto Area usually means living close to the city.  Business owners who sell sometimes find that the ‘freedom’ they enjoy after the business sells means that they would like to move to a different city, outside the GTA.  This is quite common, in fact.  If you find yourself in this situation, be prepared for other costs involved in relocating.

Selling a business can be an involved process.  Be prepared of the other costs involved in the business sale transaction.  The above list is only a sample of some of the costs that you might be subject to when your business sells.  In addition to a business broker, you should certainly retain the services of a C.A. and attorney to better advise you.

Business, Selling

June 17th, 2011 by admin

A transition plan that allows the business owner to sell the business for the highest price possible in the shortest amount of time to the most qualified buyer is generally the top of the wish list for most business owners.  Because the business owner lives and breathes their business they become emotionally attached to their customers, employees, suppliers and other business partners as the business is a reflection of who they are.

Deciding to sell the business and move to a new role is much more complicated than most business owners realize.  Sure, you can start by putting the business on the market and see what happens, but that’s not a good strategy.  If customers, suppliers, competitors or others find out, it can severely damage the business.

So where does the business owner start?  It’s my suggestion that one of the starting places is with a transition plan.  A transition plan, at its simplest level, is an attempt to define the needs of the business owner and then systematically move to their desired outcome.  And I am not just talking about the actual process of selling the business.  I would suggest the owner go back to some more basic level and understand why they are selling, what they hope to achieve and probably most important of all, what are they planning on moving to and are they excited about it.  If they are not excited about it, chances are they will do all the work to get the business ready for sale, advertise and market the business, qualify the buyers, negotiate a deal, do all the due diligence, prepare to close escrow and then change their mind because they would prefer to continue owning and operating the business than playing endless rounds of golf or become a full-time babysitter looking after the grand kids etc.

So what should be included in the transition plan?  The questions and answers can be endless.  It’s what makes sense to the owner and their specific situation.  Some sample ideas include the following:

Why does the business owner want to transition the ownership of the business?
Are there any suitable candidates and if so, why?  (The answer could be family or a current employee or a local larger competitor or …)
If not, why not? (Is the industry the business is in dying out, are there new technologies coming that make this business behind the times etc.)
Are there any specifics that would prevent the business transitioning that need to be removed?
What is actually being transitioned?
Is the owner the business or is the business an independent asset that would be attractive to a buyer?
How involved day to day is the current owner and if they are heavily involved, are processes and procedures written down that would help a new owner and encourage them to take the risk and buy the business?
What is the owner’s financial situation?  That is, can they afford to retire?
Does the owner rely on a weekly or monthly income from the business that if stopped because they no longer own the business they can still survive?
What is the current owner transitioning to?

There is no shortage of questions to ask.  The important thing is to ask the questions and keep asking them until they are all answered or its clear what the next steps need to be.  The goal of building a transition plan is to clearly help the owner arrive at a decision that makes perfect sense to them and be empowered for any next steps that they take.

Business, Selling

June 16th, 2011 by admin

Perhaps you have worked hard for many years and are now ready to retire, or maybe you started your business with a clear goal to sell it after building up its value. Either way, you have concluded that it is time to sell your small business.

When selling a small business, there are several different options for how to structure the sale. The two main choices are to sell the assets of the business or, if the business is a corporation or LLC, to sell the stock in the company. In an asset sale, the business will generally sell all of its property to a buyer.

This property often includes the right to assume contracts and also the goodwill of the business. It is important to check major contracts, particularly leases, to see if they can be assumed. Oftentimes, the other parties, such as a landlord or vendor, will need to approve the buyer taking over the contract.

Buyers often prefer to do an asset sale because of reduced liability. If purchasing the corporation outright, unknown past creditors could appear seeking payment from the new owner. Structuring the sale as an asset sale will serve to limit the buyer’s liability for past debts, particularly if notices are published pursuant with the Bulk Sales Act. Sellers, however, often prefer to structure the business transfer as a stock sale. In a stock sale, the seller’s entire profit is treated as capital gains.

In an asset sale, the seller would have to work with his accountant to identify the class of each asset sold, and then determine the tax treatment for each. Of course, creative sellers can take certain actions to encourage buyers to purchase the business as a stock sale. They can offer an indemnity agreement for past liabilities, meaning they agree to be financially responsible. If the buyer is particularly concerned, part of the sale’s price could even be left in escrow in order to pay for any lawsuits or debts that arise. If none arise within the time period agreed to by the parties, then the money is transferred to the seller.

Structuring a deal this way might permit the seller to save thousands on taxes while still protecting the buyer. The tax savings of the seller may even be so great that it would be worth lowering the price of the business. The tax savings may be great enough that it is even worth creating a corporation if you have been operating the business as a sole proprietorship, though this can be complex. This is just one of many options you have when transferring your business and this should not be considered legal advice.

Business, Selling, Stock

June 15th, 2011 by admin

It is very common for a business owner to try to sell their business by themselves and end up making costly errors along the way. Using incorrect documentation (or no documents at all) or some other form of miscommunication is actually a frequent mistake made by business owners who attempt to complete a deal themselves. Selling a small business is an exercise that is best left to professionals that can properly assist you such as an attorney or business broker.

This article examines some common documentation mistakes that have been encountered by business owners when trying to sell their business.

Document Who is Selling The BusinessIt must be made clear from the outset on who is the authorized vendor of the business. A common mistake is that the “shareholder” of an asset sale is listed to be the vendor when it might actually be the legal corporate entity. Also, if it is partnership, sole proprietorship or other form of business organization, this must be properly documented on the agreement.

Document What is Being SoldThis is a critical point that must be articulated as it can lead to major confusion and be a potential deal breaker. A common source of confusion is the difference between an “asset sale” versus a “share sale”. There is a tremendous difference between the two so as the seller, you should be clear on what is being listed for sale. Briefly though, a share sale refers to the sale of the actual share in the corporation and (usually) includes everything the corporation owners as well as its liabilities, working capital and even past legal obligations and contracts. There are major differences with respect to legal recourse and taxation impact so please talk to your lawyer and accountant to understand the best course of action for you and how best to document a purchase agreement.

Be Clear on Properly Listing the Assets Included in the Selling PriceFor any assets or equipment included in the sale you should clearly specify in the form of a list. The asset list should be clear with detailed descriptions of what is being included such as serial numbers, product identification and even what condition the equipment is in.

Expectations From Due Diligence ActivityThe buyer and seller should agree on what is being asked for in terms of the due diligence activity. A seller may have certain expectations that are not realistic for the buyer. For instance, a buyer may ask for the past 10 years of financial statements and tax returns on the business whereas the seller may only be comfortable providing 4 years of information.

Be Clear on the Post-Sale ActivityIf a buyer expects that a seller to remain with the business after the sale then the activities expected from them should be clear to both parties. Instead of just specifying ‘training’ in an agreement to purchase, there should be clarity added. For instance, it should be understood the hours of training that are expected, activities such as introducing the buyer to the customers of the business, assistance with general operations and so on.

There are many more deal points to consider that should be properly documented in an agreement. An experienced business broker can assist you with structuring a deal properly. Before you agree to any deal though you should have your lawyer refer it first though so that proper documents and deal language are used.

Business, Sale, Selling

June 15th, 2011 by admin

Buying and selling a business is not an easy process. In fact the decision to do is in itself a very monumental one. A company when deciding to sell its business or divest its stakes in some other venture has to think about a lot of things.  Among other things, the interest of the people dependent directly or indirectly upon the firm’s business activities also need to be considered.

The services of investment banking firms have become indispensible as far as a client’s business sell out decision is concerned. A company cannot just randomly divest or sell its business. It has to do it at the right time and the right time for it will depend upon the business conditions prevalent in the market.

An investment banking firm will help and advice its clients take appropriate business decisions, especially the ones related with buying and selling a business, mergers and acquisitions, capital strategy and a host of other business decisions.

When it comes to selling, investment bankers Dallas understand that it is not easy for an entrepreneur or a company to sell the business which was conceived with so much effort. Someone had said that nothing can stop an idea whose time has come. Similarly, when it is time to divest stakes in a business, there is nothing that can be done to prevent it. May be that’s the best course of action. But it is necessary that the selling decision is made at the right time so that it is possible to maximize the returns from the sale of the business.

When selling a particular product gives jitters to companies then selling a business altogether is a very comprehensive process and needs to be pursued strategically. Investment banking firms also act in capacity of business advisory firms and help the clients make the most out of their decision to sell their business.

A proper and thorough documentation of all the business traits, features, assets and values needs to be done in order to present a strong business purchase case before the potential buyers. Though every business will try to achieve the maximum possible price, it is very important that the quoted price be justifies so as to achieve the final sale of the business.

A proper marketing plan will be formulated by the investment bank that will not only present the business as highly favorable purchase proposition but also enumerate the pros & cons of buying it to the potential purchasers who may be interested in buying the business.

Once the potential buyers that will value the business and also do justice to its various stakeholders have been recognized, the experts will conduct official meeting with them and finalize the entire deal structure. It is very important that a formal and appropriate exit strategy is formulated so that the company is able to derive maximum value through the sale of its business.

Business, Selling

June 14th, 2011 by admin

There is a flood of people who are interested in selling their business in the market right now. On one hand, the recession has forced many businessmen to reconsider their goals and many are opting out of the businesses they started with much vigor. On the other hand, the baby boomer generation, which is now in its early to mid sixties and forms a major chunk of entrepreneurs in the United States, is thinking of retirement.

But the process of selling a business is not so simple for entrepreneurs in this sinking economy as it was some time back. Businessmen may have spent months preparing for the sale of a business and still not manage to sell their business on their terms. So what are the strategies that drive successful sale of businesses? As per Satish Patel, CEO and President of SunbeltNE, franchise of the world’s largest business brokerage network. “It is necessary to implement some strategies in order to ensure that selling your business ends on a successful note,” says Satish. The following are some points one should keep in mind while preparing to sell business:

* Prepare for selling your business well in advance

Depending on the nature and success of your business, the industry you are in, the complications related to getting the finances, the price you are looking for your business and various other factors – it may take anywhere from a few months to a year or so to sell your business. Business owners should start sale preparations well in advance and consult with an experienced business broker or investment banker to handle the nitty-gritty of the sale of business.

* Develop and grow if you want to successfully sell your

Smart business owners do not stop focusing on their businesses while they are looking for people to buy a business. Instead, they focus harder and try to attain more success for their business. A growing graph convinces a buyer to buy a business more than any other marketing method. Also be prepared to finance the buyer when you are selling your business so that in a credit-crunched market like now, you make a strong case for yourself.

* Sell your business at a reasonable price

In a harsh market like now, you cannot have unreasonable expectations like a 100% cash deal or getting 20-25% in grace value of your business. You should expect to sell your business at a reasonable price, close to the valuation it actually has. A fair price is likely to attract a buyer and also form a good working relation in case you plan to be involved in the business after the deal is done.

* Using a business broker for selling your business

If you try to go the ‘do-it-yourself’ way, you will probably miss out on important issues regarding the sale of your business. The paperwork of a business for sale is highly complicated and a professional business broker would go a long way in easing out the process for you. The right business broker will bring to the table a database of qualified buyers. This gives you the choice of picking out the best one. It will be worth hiring a business broker considering that he will ease the process of selling your business and will have your best interests in mind. You can always keep these strategies in mind when you are planning to sell your business. They will ensure that you are successful in etching out a great deal for yourself.

Business, Selling

June 14th, 2011 by admin

Selling a business has many moving parts and as a result is very complex. Here are 5 suggestions that may make the task easier.

1. Get a professional third party valuationThis may sound obvious but naturally the seller wants as much money for the business as possible and the buyer wants to pay as little as possible. The place to meet is probably the “Warren Buffet place” with apologies to Warren Buffet. He’s on record as saying or something close to it – I would sooner pay too much for a good company than get a great deal on a company that won’t be around much longer.

2. Hire a qualified professional that you trustSelling a business is not a quick or normally straightforward process. Each business has its own unique characteristics and is part of the dynamic global, regional and local economy as well as the specific industry it is in. Because of the complexities, ensure you have a qualified professional on your team that you trust and have complete confidence in. Apart from trust, other important components to look for include the professional qualifications from the International Business Brokers Association (IBBA) such as the CBI or Certified Business Intermediary or the state business brokers association (if one exists.) Some states require a real estate license – ensure your professional has any necessary license.

3. Make sure the business is sellableSo many owners plan on selling their business. As soon as it is on the market, they that stop doing the hard work that got the business to where it is now. Some even go on vacation. It normally takes about 6 ½ months to sell a business; if it sells. Make sure you continue advertising to your customer base, keep the employees motivated, continuing to check your customers are happy, pay your bills on time and most importantly of all, continuing to keep your landlord happy. The number one reason that a business won’t transfer from the seller to the buyer is that there is a dispute between the landlord and the seller and/or buyer. If you need a vacation, take it before putting the business on the market. Once it’s sold and you have trained the buyer, then it’s time for that trip of a lifetime.

4. List the business for sale at or near the business valuationIf you’ve owned the business for many years or recently spent a lot of money fixing a problem, it’s not uncommon for sellers to want to ask as higher price as possible so they can earn back some of that money. Buyers have a large number of businesses to choose from. Because most businesses look similar or they are not emotionally attached to the business, they have little problem in walking away. A good business for sale is fairly priced and has good potential. A buyer is looking for potential. Too many sellers want to be paid for potential but that’s the reason why the buyer is buying the business and is only willing to pay a fair price. The buyer is the one that will do all the work to take advantage of the potential; not have to pay the seller for it when they buy it.

5. Don’t forget the Golden RuleThe Golden Rule is – put yourself in the shoes of the other party. If you’re talking to your buyer, try to understand what’s important to them. If you are discussing your lease with your landlord, work out what’s important to them. And so it goes. Lenders, business brokers, franchisors (if applicable) attorneys, accountants and others all have a role to play. Even family members. Selling a business is not an easy event at the best of times. It’s even more difficult in a tough economy, if finance is tight, if key players have health issues and many other variables. Hence the value in hiring a professional you trust so to help guide you and keep all the moving parts lined up and managed.

Business, Selling

June 11th, 2011 by admin

Prior to when the business selling procedure even takes place you must establish the actual value of the company. Many company owners inflate the value of their small business. The truth is the ultimate value of the small business is going to be dependant upon the actual marketplace.

A few strategies to figure out business worth consist of: cost of valuable assets, years the organization has been around business, the book value, the business tax statements during the last five-years and also other important facts about the company.

One more thing to look at over the business appraisal process is the potential for working with a business valuation service or corporate evaluator. Working with a business valuator will precisly determine equipment and value properties and assets of the business.

A competent appraiser is vital. Finding a professional appraiser could make or break the end price tag of a business. They’re able to help organize unorganized bookkeeping and financial records. Most of all they will help you get the financing for the purchaser.

One of the most important things to think about while selling a business will be timing. Timing is everything! “Reducing” the amount of cash flow for income tax reasons can be extremely detrimental whenever organizing to market your business.

We reside in Wisconsin and thought I would seek the services of a local Wisconsin corporate valuator and business valuation company to help in the business selling undertaking. I selected Asset Equipment Appraisals.

This company is a corporate apprasier and equipment appraiser. They offered skilled small business consultation and also helped me make all of the crucial business decisions. Ultimately we decided on much more of a longer term objective in order to sell the company. I decided to wait to sell the business and thoroughly plan for the future.

Using their careful planning, business consultation and exact equipment appraisal services I was able to sell the business for over market value. Their appraisal strategy, communicating and business appraisal made the difference.

The business appraiser has to think about what the state of the economy is, how many qualified buyers are essentially out there, readily available investors in the market along with the amount of other businesses available for purchase inside the same industry.

Other considerations to think about when selling a business:

Is it the right time for you to sell? What will you do after you sell the business? You have to take an honest examination of the company, your life and precisely why exactly you will be selling your business.

All this adds up, from valuing businesses capitol, valuing tangible assets and other property appraisals. A business evaluation and valuation is essential for M&A transactions or other estate appraisal needs when selling a business.

I’m currently retired in comfort and kicking back. An appraisal service has been among my last major decisions which I had made, but it was the most significant decisions which required preparing, effort and the right timing. It absolutely was all worth it in the end!

Business, Selling, What's, Worth