Your small business is no longer serving your needs and the time feels right to enjoy retirement or pursue a new opportunity. Well you can't just walk away, so now what? If the sale of your business represents the core of your retirement plan, then you have one chance to do this right. Who can help you with this? As anyone who has gone through the process of selling their business can attest, it takes a village to complete the transition and everyone involved has an important role to play. Your business broker will assist in coordinating your entire team of advisors and ensuring that all parties are on the same page throughout the sale.
Additionally, your broker can make referrals to those who can best advise you in making required changes to your business prior to the sale and to keep more money in your pocket afterwards. Here's who you need to know.
Your business likely won't be ready to sell on the day you decide you'd like to move on, but if it is then your broker can begin the sale process immediately. However, chances are that you'll have to make several minor changes and possibly a couple of major ones to maximize value in the sale and ease the transition. Depending on the size of your business, you may even need to seek out the services of a contract CFO or succession planner to work with you for several months or years in order to prepare your business for sale. It's important to keep in mind that your business will have to withstand the scrutiny of a buyer, as well as their entire counsel (lawyer, accountant, lender, other advisors and potential partners). Depending on the size of your business, your buyer is likely to be a savvy entrepreneur who knows exactly what they're looking for and what to avoid.
In addition to the tweaks or wholesale changes recommended to your processes by an experienced small business consultant, your personal financial situation needs to be planned in advance to absorb the sale proceeds in the most tax efficient manner. The guidance of a knowledgeable financial planner, working in conjunction with your accountant and tax attorney, can ensure that the transfer of wealth from your corporation to your personal side will do more to benefit you and your family in retirement than it will the government.
You may also want to speak with an insurance specialist to learn of additional strategies to include as part of your overall succession planning, especially if the transfer is to a family member and you're doing the financing. If your plan is to divest your business through a share sale, then several years of legal and accountant-directed planning may be required to qualify for tax advantages and reduce the inherent risk for the purchasing party. And as with any other major change to your life, you may need to revisit the contents of your will.
The feedback and planning from your entire trusted circle of advisors will play a significant role in assisting your business broker with structuring the deal in the most beneficial manner on your behalf.
DURING THE SALE PROCESS
So you've been actively planning for months or years to get to this point and your small business is finally ready to sell. Your broker will now require several weeks of analysis necessary to understand your business and its position of value within the market. Often your accountant will be the only one who can provide the answers your broker needs to fully understand how money is going in and out of your corporation.
Once you've openly discussed the valuation and made the decision to engage, your broker's office will then begin the preparation of the confidential marketing package. Once a serious buyer has been identified and qualified, your broker will facilitate the negotiations. More complicated transactions will see buyers relying on professional legal and accounting advice to table an offer, however smaller transactions don't typically see their involvement until after an offer has been accepted.
When both parties have reached a conditional agreement, the period of due diligence will commence. That is when the lender or the buyer's accountant will further examine the financial records of the business, with your broker acting as the intermediary to satisfy their information requests. It is during the initial period of due diligence that conversations with the landlord will also take place, usually resulting in an assignment of the remaining term of the existing lease. If the selling party owns the facility, then their lawyer will also draw up an acceptable lease for the premises at fair market rent. If the seller is staying on in an employment or consultation capacity for more than a nominal training period, you will also need a consulting agreement drawn up before the deal can be completed.
After the purchaser is satisfied with all of the conditions set out in the offer, their lawyer will then draft up the final purchase agreement. The seller's lawyer will undoubtedly have some input after an initial review and the legal parties will work together to complete all associated documents in time for the day of closing, where the business will officially change hands. The entire sale process, from the valuation to a successful closing, should be managed by an experienced broker. This keeps everyone pulling in the same direction and ensures the process is transparent & the flow of information is unimpeded.
AFTER THE SALE
After the sale has occurred and your wealth advisors are busy managing your money, a crucial level of involvement is coming from you, the seller. Few factors contribute to a successful transition moreso than the quantity and quality of training imparted to the incoming buyer by the outgoing seller. This assists in passing the torch on behalf of employees, customers, suppliers, industry organizations and service providers. Therefore it is very important that the relationship of the buyer and seller survives the sale process intact. Your broker, acting as an intermediary on behalf of the sale, will do their best to see that everyone gets through it unscathed by acting as a buffer.
There's often a seller financing arrangement in place that's aligned with a non-compete clause, so this unity of interest can be powerful in ensuring the business undergoes a healthy transition for all involved parties. Depending on the size of your business and how complicated the transition may be, a seller's involvement may be anywhere from two weeks to a couple of years.
It's also important to keep in mind that some small businesses do not require any more involvement from the seller than very basic training and a handing over of the keys. Some businesses simply demand less and some buyers will prefer it that way so they can make the business their own right away.After your involvement in the transition is complete, your next step will likely be to call every seller's favourite person in the process...a travel agent.
Where you end up at is a direct result of how you begin. If you're thinking of selling your small or medium-sized business, we would be pleased to answer your questions and assist you with starting this process. Let us put our expertise to work for you!
Ryan Jorden is the Managing Partner with VR Business Brokers in Calgary, Alberta, where he specializes in valuating and facilitating the sale of privately held businesses. You can reach him confidentially at firstname.lastname@example.org or visit our website to learn more. We can also connect on Twitter and Google+.