Are you a business owner without a family member or unrelated
successor in mind? Many Canadians find themselves in this
predicament. They have spent most of their adult lives building up
a business, only to reach retirement without a succession plan.
Creating a plan to sell your business doesn't have to be
difficult. In this regard, an early start can be most helpful.
Relatively small changes starting at least three to five years in
advance can potentially reduce the complexity of the sale and
increase the selling price.
Income statement – different set of eyes:
Prior to selling your private business, it is likely that the
only outsiders that have seen your "numbers" were your
lenders and the tax authorities. From an income tax perspective,
since most people like to pay as little tax as possible, owners
often try to defer income when possible to reduce their immediate
tax burdens. When you are thinking about selling your business, the
reverse becomes true. You want to be able to show your financial
statements to prospective buyers and put your best foot forward. A
track record of higher net income over a number of years generally
generates a higher selling price.
Balance sheet – clean it up:
A buyer is primarily interested in your business's operating
assets. Anything else on the balance sheet will only serve to
complicate the sale. If you have excess cash or investments, or
hold non-operating assets such as land or buildings (unrelated to
your business), now is the time to consider moving these assets off
the balance sheet (out of the company). If there is no pressing
need for cash, these assets can usually be transferred to another
corporation on a tax-deferred basis to avoid triggering any
immediate tax obligations. Furthermore, depending on your personal
circumstances, many of these steps are required to access your
lifetime capital gain's exemption, which could lead to
significant tax savings. Make sure to consult first with your tax
Increase the level of assurance:
Consider upgrading the level of assurance your accountant
provides with respect to your financial statements (i.e., a review
or an audit engagement). These are more involved and more costly
than a Notice to Reader. Put yourself in the shoes of the buyer.
When they read your accountant's Notice to Reader, they may be
skeptical about the reliability of the financial statements due to
the lack of assurance. Moreover, several years of reviewed or,
better yet, audited statements may inspire more confidence and less
due dilgence and potentially generate a higher selling price.
Start identifying special purchasers:
Often misunderstood, special purchasers are those who, for their
own reasons, are willing to pay more for your business than a pure
financial investor would. Typical examples of special purchasers
include competitors, suppliers, customers and company
The catch, however, is that even special purchasers will not pay
any more than they absolutely have to. For example, if there is
only one special purchaser who would be willing to pay $1 million
for your company, but every other potential purchaser will pay only
$500,000, then the special purchaser needs to offer only $500,001
(a nominal amount more) to be the successful bidder. When it's
time to put your business up for sale, the more special purchasers
you can attract the more likely they will bid against one another,
therefore increasing the selling price.
If you are fortunate enough to have a family member ready to
succeed you after you retire, there are very different concerns to
keep in mind. In a future issue of Comments, we will
provide a follow-up to this topic, entitled, "Passing your
business to the next generation."
Mitchell Ornstein is a specialist in Soberman's Business
Valuations & Litigation Support Group. He has been with the
firm since 2008. He is both a chartered accountant and a chartered
business valuator. Mitchell is knowledgeable in a wide range of
audit and assurance services, as well as business and intellectual
property valuations, and succession planning.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).