10 Tips for Selling a Business

1. Ensure all of your financials are up to date. Usual requirement is the last 3 – 5 years of historical Income Statements and Balance Sheet that are prepeared by a qualified and certified accountant with a CA, CGA or CMA designation. For small businesses if you do not have an accountant prepared statement than your Revenue Canada tax return T2 filing should be acceptable as well.

2. Tidy up your business as if you are about to move to a new house. Get rid of all those old inventory, papaerwork that you have been collecting for the last 10 years, bad debts, problem customers, unproductive employees, and assets that are not being utilized and/or old. A Buyer is not interested in inheriting your problems nor will they pay you for those. You are better off selling it yourself for a reduced price than thinking that a Buyer is going to pay you full dollors for those. As for the documents, a general rule of thumb is that if you have not looked at it for 3 years, most likely you will not, so get rid of it. A great tool which we recommend is to hire a part time employee and invest in a good shredder and scanner (both can be had for less than $600, I recommend the Fijitsu ScanSnap from Costco), and have the employee go at it.

3. Start thinking about how you can delegate some of your day to day activities of the business. Buyers do not want to buy a business that relies on the you doing every aspect of the operations. Create a lists of all the things that you do on a daily basis for the business and see what 3 – 5 areas that you might be able to delegate or train an existing employee to take over.

4. Check your existing lease, contracts and any agreements that you have in place. Some obvious ones are: lease, franchise, customers, etc. Some not so obvious ones are: website, yellow pages, long distance service providers, garbage disposal, etc. Ensure that they are up to date and can be assigned to the buyer.

5. Get your accounts up to date with GST, payroll taxes, federal taxes, suppliers, customers, etc.

6. Create a lists of everything that you would have to show or teach the buyer. Place the information on a binder or provide the lists to your business broker. We find that buyers typically due to ignorance want the seller to stay and teach the buyers the business for a very long time, if you had created a lists ahead of time and be able to show it to buyers, they are more at ease that you have thought through this process and can see no need for you to stay in the business for 6 months when just 2 months might be sufficient.

7. Contact an experienced Business Broker to get advise on what you should do and could do to maximize the price that you get for your business.

8. Visit with your accountant and get their advice on taxation and capital gains issues so that you do not have to pay more than you need to.

9. Plan what you are going to do after you sell your business as this will affect timing, advise from your accountants and future requirements.

10. Don’t try and selling your business on your own. Leave that up to your Business Broker. It is more imprtant that you concentrate on ensuring that your business performs to best ability during the sale process.

How to Negotiate a “Put and Call” Agreement When Selling Your Business

I am often interested in learning more about how business sales transactions are negotiated and structured. Here is a great way to structure a deal that caught my eye. If you are thinking about selling your business, and would consider retaining a minority position in the company, this method of structuring the transaction will be attractive to you. This method of structuring the deal also takes away some of the more traditional fear of “buy/sell” agreements from a seller’s perspectives.

How to negotiate a put and call agreement when selling your business | Smart Business

VR Completes the Sale of Hotshot Trucking Business

We were engaged by this client to help in the sale of his business approximately 5 months ago through a referral from their Accountant. We met with the Seller and learned more about his business and his motivations for selling the business. The Seller was not a typical Seller since he was only in his mid-40’s. The business was very successful and growing as well. The Seller wanted to sell the business primarily in order to concentrate on their other business which is a landscaping business that operates out of the same location and primarily managed by his wife.

We reviewed the last 3 years of financials, looked at market comparables of what other businesses in the industry sold for and came up with a “Most Probable Selling Price” for the business. The business was listed in the market place for $550,000. We received over 200 inquiries on this business from potential buyers. All prospective buyer inquiries were qualified by VR support staff by asking prospective buyers to complete a standard Confidentiality Agreement and Buyers Profile. Based on the information we gathered we were able to determine and qualify 8 buyers. These 8 buyers were provided the opportunity to look at the business further via information available in the Virtual Data Room (VDR).

Of the 8 buyers, after further evaluation we were able to provide the Seller with 3 offers for the business of which 1 was accepted by the Seller. The entire process from start to an offer being accepted took about 4 months. The process was however delayed by about a month and a half due to financing. For some reason the Banker that the Buyer was dealing with could not somehow understand the Buyer’s need and was unable to complete the financing. On the advise of VR, the Buyer then spoke to another Banker in a different Bank and was able to secure better financing terms and rates for the same deal within one week.

Overall the transaction closed in about 5 months which is the average length of time for a business sale transaction at VR Business Sales Edmonton.

This transaction was completed by Jey Arul and Gary Repchuk.
The lawyer that represented the Seller was Richard Finlay from Hansma Bristow Finlay LLP.

VR Business Sales Completes the Sale of the Bin Company

EDMONTON, ALBERTA–(Marketwire – May 23, 2012) – VR Business Sales, Mergers & Acquisitions of Edmonton, AB has just completed the business sale of The Bin Company Inc., a business that provides waste containers for renovation construction, yard clean up, seasonal clean up, garage de-cluttering, and many other do-it-yourself projects. The Bin Company has been established in the Edmonton area and has been the industry leader in bin rentals and garbage disposal for the last 8 years with 6 straight years of being the Consumer’s Choice Award recipient.

The Company was purchased by CERF GP Corp., the general partner of Canadian Equipment Rental Fund Limited Partnership.

The Seller, Mr. Newman stated “VR Edmonton made the process seamless and worry free. They managed the process from the first day we listed the business and providing us with multiple offers for the business.”

Jey Arul, President at VR Business Sales, Mergers & Acquisitions in Edmonton, represented The Bin Company throughout the transaction. VR Business Sales, Mergers & Acquisitions Edmonton facilitated all phases of the transaction, from initial analysis through closing. Details were not disclosed.

About VR Business Sales, Mergers & Acquisitions Edmonton

VR is Edmonton’s only business is representing business owners in the sale of their business; confidentially, professionally and with proven results. Since 1979 VR Business Sales, Mergers & Acquisitions has sold more businesses in the world than anyone®. Information about VR Business Sales, Mergers & Acquisitions Edmonton can be found on their website at www.vralta.com. VR Business Sales, Mergers & Acquisitions Edmonton is located at 211, 3132 Parsons Road, Edmonton, AB. For more information, please call 780-469-4769.

What the Market Tells You

It never fails to amuse me how at least once a week I will come across an owner of a business that will tell me how he came up with the price of the business.

It often goes like this, the Seller will call our office for a meeting to discuss selling their business. I will then visit them at the appointed time (if it is at their place of business it will usually be after hours or weekends). We will then have a general discussion about their business, what they do, how long they have been around, some of the challenges and opportunities in the business….etc. sooner or later the discussion will star to narrow down to the business financials, revenue and the value of it. Most business owners will tell me that they have “no idea” on what is the value of their business. And most will tell me, “my accountant told me…“, “my lawyer told me…“, “my financial advisor told me…“, “my banker told me…“, etc…it seems like these days there are no shortages of “free opinion” on business values and suddenly everyone is an expert in business valuation.

I then try and educate them about what really matters about the business value……..”What the market tells you”, after all that is the one that matters most. Anyone can come up with a value of the business on paper, but what matters is what someone is willing to pay for it and produce a cheque with that number.

So my advice to all business owners who are thinking of selling their business in Alberta is this, get a business value opinion of your business from someone who has actually sold businesses…..not from those who can only tell you, but do go out and has to defend the price and get you that value.

10 Things Buyers Want to Know

At VR Business Sales we receive approximately 80 inquiries from Buyers on a weekly basis looking to buy a business. What are these buyers looking for? What are some of their questions and what do they want to see in a business they are looking to invest in…….
Here are some of the questions we get on a weekly basis from qualified buyers:

1. What is the required capital investment I need to purchase this business?
2. What is the annual net increase in sales in this business?
3. How much of inventory I am buying and what is the inventory?
4. How much money can I borrow from the bank for this business based on its current cash flow?
5. What is the possibility of the owner staying on for a minimum of 3 – 6 months to assist with the transition of the business?
6. What makes this business different, special and/or unique?
7. What further defines the product or service in this business? Does it consist of bid work? Repeat Business? Written contracts?, etc.
8. How can I grow this business further?
9. What can a Buyer do to increase the value of this business?
10. What is the profit picture of this business in good times and bad times?

So if you are thinking of selling your business now or in the future, please take a few minutes and see if you can answer some of the questions above.

Should I Sell My Business

Selling your business will change your life so it’s important to consider the options and implications before you decide to sell. Whatever your reasons for selling, ensure you’re making the right decision by asking yourself the following:

• Am I really ready to sell, or do I just need a break?
• Have I considered other options, such as bringing in outside management?
• Why am I selling? Buyers will want to know the answer to this question so prepare a truthful answer that will not jeopardize the success of the sale.
• Will my family and friends support my decision to sell?
• Is the timing right? Could the market and sale price be better if I waited? As a general rule, the best time to sell is when the business and your sales are peaking and the industry is likely to attract great interest.
• Will the sale benefit me financially?
• Will I be restricted from trading in my profession once the business is sold? This is a common clause in contracts for the sale of a business.

You should also seek professional advice, so talk with a business or financial advisor, accountant, and lawyer to make sure you achieve the best possible outcome from your decision.
Think about your staff
You also need to consider your employees. How will they be affected by the sale of your business? It’s important to note that whoever buys your business is not obliged to employ your former employees. When the business is sold you may have obligations to pay entitlements which could include severance pay and leave entitlements.

What are the tax implications if you sell your business?
There are many tax issues to consider when selling your business which include:

• goods and services tax;
• capital gains tax;
• private expenses;
• finalizing employee/independent contract or obligations;
• record keeping obligations;
• completing final income tax returns;

Do I have obligations under my lease if I sell the business?
If you operate your business from leased commercial premises, your obligations under the lease do not automatically transfer to the new owner upon sale of the business. You may still be legally liable for the rent and all other obligations under the lease unless you arrange to have the lease assigned (transferred from one tenant to another) to the new owner of your business who will then become the new tenant. Refer to your lease to ensure you are permitted to assign the lease and understand the process required for the assignment. Generally, leases will require the tenant to request the assignment of the lease in writing.

When Selling Your Business…Experience is Important

Experience is worth millions.  Selling your business is a once in a lifetime event.  Deciding on who will represent you in the sale of the business may mean the difference between selling your business and closing your doors.  For business owners, this is a high stakes decision.  When studies show that up to 85% of an owner’s personal wealth is tied up in his business, there is no option for the owner other than assuring that the job is done right.
Someone that has completed numerous business transactions has seen the good, bad, and ugly.  They are business intermediaries that have the experience to pull through turbulent waters to get to the closing table.  They are business brokers that have seen the last minute issues pop-up that become potential deal killers. They are deal makers working with all of the other business advisors such as attorneys, accountants, lenders, to make sure that everything comes together to complete the business sale.  When selling a business, the company does not get sold overnight.  It takes time to find the right business buyer for the company.  An experienced business broker will maintain confidentiality while qualifying buyers.
Business owners must concentrate on maintaining their business while letting an experienced professional look for mergers or candidates for the acquisition.  Emotions often become driving factors of a business sale and a skilled business broker can help the buyer and seller separate irrational decision making from the facts.  Experience is not a commodity.  It cannot be shopped for price.  I have learned in life that experience comes at a cost; however there is a return on this investment.  In the case of selling a business, the return on investment can easily be worth tens of thousands.

Common Questions From Business Owners

As a professional business intermediary, I interact daily with business owners and understand many of their concerns. Here a few of the questions I am often asked.

1. What key points do I need to negotiate in addition to the price of my Company?
The sale of a business involves many elements of financial opportunity to the Seller. The purchase price is only one component of the overall goal. When representing a client, my understanding of all of the available options maximizes the total financial yield for a Seller. I take into account all of the elements of the financial transaction including: yields from a stock sale versus asset sale; amount of initial investment; terms and interest rate on promissory notes; liabilities to be assumed by the acquirer; transfer and negotiation of leases; personal guarantees; employment contracts; consulting agreements; non-compete agreements; current assets to be retained by the Seller; earn-outs (percentages of future sales paid to Seller); stock ownership retention; continuation of perks and fringe benefits (i.e. health insurance); purchase price allocation and other pertinent details. The total financial package goes well beyond the base purchase price.

2. Is it necessary to get environmental clearance even if I do not own the property?
It is the responsibility of the Seller to obtain required environmental clearances prior to the closing of a business sale, regardless of whether the Seller owns or leases the business property. This generally applies to businesses subject to environmental scrutiny such as manufacturing businesses or firms routinely dealing with hazardous substances. It is always in the Seller’s best interest to conduct an Environmental Assessment before handing over the property to a Buyer so that there is some record indicating that the property was handed over to the Buyer in a “clean” state.

3. Is my transaction likely to be a share sale or asset sale?
In most cases, a Buyer will be interested in acquiring 100% of the assets of the Company, as opposed to buying the shares. In a share purchase, Buyers are primarily concerned about inheriting any potential or contingent liabilities flowing from the past operation of the Company. An asset transaction also enables the Buyer to restate the value of the assets to fair market value (as opposed to its current depreciated book value on the balance sheet) and to re-depreciate these assets. The difference in accounting treatment of buying assets versus shares has tangible financial and tax benefits to the Seller and the Buyer. If the Company is an Incorporated business, it is advantageous for the Seller to sell the shares of the Company to avoid being taxed both at the corporate and individual level plus the Seller may be able to take advantage of the capital gains tax exemption. However, there are a number of creative techniques in deal structuring that can be considered in order to minimize the tax impact for both Buyer and Seller regardless of the transaction being an asset or share sale. It is imperative to retain the advice of a professional that is familiar with these strategies early in the M&A process.

4. How many years of financial information does a Buyer typically want to review?
Three years of historical financial information should be sufficient for potential Buyer to formulate an opinion of value and a comfort level with the business. In today’s fast changing world, statements more than three years old are not very relevant to the operations of the current ongoing business. In addition to historical information, year-to-date or interim financial statements are required. It may be advantageous to prepare a projected income statement for the upcoming period as well. The Seller should also be prepared to discuss any dramatic swings (up or down) in sales, profit margins or expenses.

Can You Sell Something with No Value

As I go on appointments to meet prospective clients wanting to sell their business,  I caution them that there are two ways in which one can normally value small businesses (notice the word “normally” and “small”). One way values Tangible Assets, such as inventories, receivables, furniture, fixtures and equipment. The other uses a multiple of Owners Benefit (Operating Profit plus owner’s salaries, depreciation, amortization, interest and personal benefits charged to the business). In other words, if your business generates minimal or no Owner’s Benefit, what you are really selling are the business’ tangible assets — what we call an Asset Sale. Ordinarily, you would not be able to sell your business for an amount greater than the market value of those assets — market value is in the “eye of the beholder”. However, buyers normally define Market Value at 25-35% of the assets’ original value.

Now, there are cases in which sellers pay more than the value of the net tangible assets—creating Goodwill in the seller’s balance sheet equal to the amount in which the purchase price exceeds the net tangible assets of the acquired company. Goodwill, however, normally has a value—such as competitive advantage, brand, employees, customer base, etc.

In summary, if your business is not generating profits, what you have is an Asset Sale and those assets need to have a realistic value assigned to them for buyers to want to buy.  In my opinion, you cannot sell anything that does not have a value attached to it that is equal to or better than the buyer’s expectations. So, if you are selling, take a hard look at what you are REALLY selling and consult with your business broker on pricing your business properly.