Selling Your Business  

  • By Bob Hughes
  • 15 May, 2015
When selling your business, you don’t want just any buyer, you want the best buyer. With the market we’re now experiencing, many sellers are getting multiple offers, but the buyers they choose aren’t always the ones offering the most money.

Would you consider a lower price for a buyer that fits the company’s culture? Would you consider an offer that’s a million dollars lower if it meant the difference between years of seller financing and cash at close?
It’s common for deal structures to include a variety of options which must be carefully considered and evaluated, long before you get to the negotiating table.

You may not realize it, but you’re positioning and negotiating from day one of a sale. Be sure your priorities are well thought out or you might give a buyer the wrong impression which can have serious consequences. There aren’t any wrong answers – your priorities should be what you feel is important.

A prospective buyer may ask how long you’ll stick around after the sale and you may casually respond that you’ll be around as long as needed. Then you find out that the buyer is thinking about a two year transition when you and your wife had been discussing a potential move to Florida.

Something like that could blow up a deal. Had your initial response been that you would be around three to six months and then could provide consulting services from Florida, the buyer would not be counting on long-term support. Remember, it’s always easier to give the buyer more than expected than take something away.

As a seller, there are some common decisions you may have to make:
  • Financing – Do you prefer a higher offer with some seller financing or a lower offer with cash at close?
  • Transition – Are you looking for a quick exit? Does the buyer expect a lengthy transition?
  • Employees – Sellers are often very protective of their employees. Will the buyer relocate or replace staff?
  • Ownership – Are you looking to maintain a minority stake for yourself or your family?
  • Legacy – Most sellers don’t want to cash out and watch the company erode. Ten years from now they want to look at a successful business that they had a hand in building.
  • Real Estate – Is the buyer interested in your building? If the buyer doesn’t want your facility, how soon can you fill it?
  • Trust – Do you trust the buyer? Some sellers will pass up higher offers to work with a buyer they feel better about.
Even if you know your preferences, you may not get everything you want when making a deal. A reputable business broker or intermediary will be sure that the right questions are asked to help you organize your thoughts, review your priorities and understand what the market will bear. In the end, you’ll find yourself in a better position to negotiate and close the deal—without sacrificing your goals.

Benefits of using a broker to sell your business:

  • Confidentiality . A business broker will protect the identity of the company and contact only owner approved buyers through a blind profile – a document describing the company without revealing its identity.
  • Business Continuity . Selling a business is time-consuming for an owner, and with a business broker, the owner can maintain a focus on running the business when a broker is working on the sale.
  • Reaching potential buyers . Business brokers have the tools and resources to reach the largest possible base of buyers.
  • Marketing . A business broker can help present your company in the best light to maximize the sale price. He or she has an understanding of the key values that buyers are looking for and can assist in identifying changes that can lead to a better selling price.
  • Valuing your Business . Putting a value on a business is far more difficult and complex than valuing a house. Every business is different, with hundreds of variables that have an impact on the value. Business brokers have access to business transaction databases that can be used as guidelines or reference points. But the best way for a business owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for his business, which is much more likely using the resources of a professional business broker.
  • Balance of Experience . Most corporate buyers have acquired multiple businesses while sellers usually have only one sale. An experience business broker can level the playing field for a business owner making his one and only business sale.
  • Closing a Deal . Since the business broker’s sole function is to sell the business, there’s a much better chance that a deal will be closed in less time. The faster the sale, the lower the risk of employee problems, customer defection and predatory competition.
By Loren Marc Schmerler is President and Founder of Bottom Line Management, Inc., IBBA Member 12 Jan, 2018
1. How much is my business worth? The correct answer is the price a Buyer offers you that you are willing to accept. It makes no difference whether you are making money or losing money. It makes no difference whether sales are increasing, declining or flat. It makes no difference how much blood, sweat and tears you have put into your business. It makes no difference how much money you have invested in the business. It makes no difference how much money you owe to the bank or to yourself.

It makes no difference what a business valuation or appraisal says. It makes no difference what your hard assets are. It makes no difference what your customer list or client list contains. It makes no difference what your patents or service marks cost you. It makes no difference whether you are a Franchiser, Franchisee, Licensor, Licensee, Distributor or Independent Contractor. The bottom line is that what you finally accept is what your business is worth.

2. How long will it take to sell my business? The correct answer is no one knows for sure. But I tell my clients that the average time is seven months from listing to closing. For companies that sell for $1 million or more, the average is nine to twelve months. But I also explain that the quickest I ever sold a business was one week, and the longest it ever took me to sell a business was six years. Additionally, I explain that price and terms sell a business. The lower the price the more affordable the business will be. The lower the down payment, the more people will be able to consider it. The greater the amount of owner financing, the easier the business will be to sell.

3. Is there anything I can do to make my business more desirable? The answer is yes. The most important thing you can do is to put your ego aside and not make the business dependent upon you. Ideally, the goodwill of the business should be at the lowest level that interfaces with customers or clients. This means that you want to hire and keep employees that make your customers happy with high quality work and excellent customer service.

4. Is there anything I should not due during the listing period? The answer is that you should not slack off in any way. You need to stay focused and operate your business as if it will never sell. You need to work as hard or harder no matter how burned out you feel. Do not make any major changes during the listing period. Try to retain all good and excellent employees and remove those that are not contributing as they should. Try to keep your inventory fresh and eliminate any obsolete items. Keep your equipment and machinery well maintained and properly functioning.

5. What is due diligence? It is the process where the Buyer examines all your books and records, gets approved by the Landlord, gets approved (if applicable) by the Franchiser, Licenser, Distributor, bank, etc. Your books and records need to be current and “bullet proof.” Your tax returns for payroll taxes, sales tax, state income tax, federal income tax, county income tax, city income tax and any other municipality taxes are 100% current. Your various licenses need to be current whether or not the buyer will have to apply for their own. You want to fully disclose everything and not leave any skeletons in the closet.

6. What else do you suggest I do to impress a Buyer? Have a job description for each employee. Put together a Policies and Procedures Manual. This will make the corporate buyer feel more comfortable about taking over the reins. Make sure all your employee reviews are current. The last thing a new owner wants to do is to sit down in a vacuum with an employee who is expecting a raise. Make sure you clean everything that is dirty. Make sure you fix anything that is broken. You do not want the Buyer to wonder what else might be a potential problem. Prepare a business plan and/or marketing plan to show the Buyer how he or she can grow the business. Put together a transition plan that shows the Buyer how you will assist them daily for a period of 28 days. The Buyer may not want you for the full transition period, but at least you are showing that you have thought it through and are willing to make yourself available.

7. What happens if I agree to do some owner financing and the Buyer misses a payment? The way the closing attorney prepares the paperwork, if a Buyer misses a rent payment or a note payment, it is considered an event of default under the note. This will allow you to take back the business in a worst-case scenario or enter into serious discussions to protect your financial interests. While the best outcome is a Seller getting paid all their money and a Buyer being successful, you must plan for the worst and hope for the best. But I also tell my clients that they should never sell their business to a person they feel will not treat their employees, customers, clients or vendors properly. If you ever get a knot in your stomach during the negotiation that is the time to throw in the towel and let me gently explain to the Buyer that you do not feel it is a good fit.
By Jonathan Funk 23 Aug, 2017
On July 18th 2017, The Federal Government announced major tax changes on business owners - triple taxation.
Previously you would have received much more on the sale of the share or assets of your company.
The new legislation taxes could be as high as 75%.

Astra has a proven program that will mitigate this new onerous tax legislation. We would like to have the opportunity to show you how we can do that. To avoid “triple taxation” you must plan your exit strategy through a proven program. Our SuperMax and MiniMax programs will abate these new punishing tax changes. Our financial consultant will review your situation and demonstrate how Astra’s Super or Mini Max programs will work for you to save you many, many thousands. Please contact us at info@abc-astra.com or bhughes@abc-astra.com.


SUMMARY

This note is a summary and clarification of the 27 page announcement by the Minister of Finance on July 18 which has major implications for private business owners in Canada. Please take the time to review this note and give yourself time for reflection. We suggest you read this more than once.

The tax consequences of the NEW Rules could cost you millions of dollars without putting smart tax planning in place.

Scenario A - Under the old rules, you could sell your company’s shares and after it paid the capital gains taxes due, the net cash proceeds could be put into your hands personally with no additional tax to pay on the transaction. Not any more.

The proposed new rules should not impact your company 's ability to pay capital dividends (net after tax proceeds from the sale) to you as a shareholder unless the buyer and the seller are not dealing at arm's length (for example, between family members). With a non arm’s length transaction, the net proceeds are taxed again in your hands as an ineligible dividend at an effective tax rate of between 42 to 57% depending on your province of residence.

Scenario B - Under the old rules, you could sell your company’s assets and after it paid the capital gains taxes due (if any), the net cash proceeds could sent to your Holdco as an after tax intercorporate dividend with no additional tax to pay on the transaction. This would have allowed yo to redeploy cash for other investments. Not any more.        

The proposed new NEW Rules will disallow the inter-corporate dividend as a tax free transfer to your holdco and instead tax it as an ineligible dividend at highest possible tax rates.

Scenario C - Old rules: Shareholder dies, creating a deemed disposition of shares. No tax paid liquidity is in hands of estate to pay tax. Estate uses a capital loss manoeuvre in combination with “stop-loss” rules and acceptance of a promissory note from a corporation to mitigate the amount of actual tax due as a result of deemed disposition of shares when the shareholder dies.

The proposed new NEW Rules will disallow the estate from transferring shares with a high cost base to a parent company in exchange for a tax-free promissory note.    

NEW Rules : Shareholder dies, creating a deemed disposition (CRA considers shares and other personal property to be disposed/sold) of shares. No tax paid liquidity (ready cash (on hand) is in hands of estate to pay tax. Estate raises cash to pay this tax by selling corporate assets with attending cap gains tax "A". Net proceeds are paid off of the balance sheet to pay the cap gains tax on the deemed disposition caused by shareholder's death. This is Tax "B". However since it all came off the balance sheet, CRA wants additional tax as they regard this as a non-eligible dividend or Tax "C". This is "triple taxation". A+B+C=CRA The total tax bill could be as much as 75%!!!

Scenario D- Old and New rules are the same: Shareholder dies, creating a deemed disposition of shares. No tax paid liquidity is in hands of estate to pay tax. However life insurance proceeds come into and out of the corporation tax free by way of capital dividend account (CDA. Sec. 89) to pay required taxes. Estate now transfers shares to whomever it is directed by the Will of the deceased shareholder. No corp assets were sold, no taxable cash came off the balance sheet's current assets yet the cap gains tax were paid. The new shareholder's capital is still on the balance sheet but it is now tax paid or paid up capital (PUC). Dividend income paid at say 8-10% of the tax paid PUC are within CRA's "safe income" rules but taxed at the attending marginal rate.

Here are the main reasons tax practitioner’s advocate the use of life insurance in corporate-estate situations: A) it’s a lot cheaper than paying ANY amount of tax and B) it is already pre-approved by CRA and does not cause any tax burdens.

In summary: either from action or inaction when large blocks of capital are moved into the hands of a shareholder or an estate, the transactions are on CRA’s maximum tax radar. On the other hand if dividend income on capital is employed as a source of income, the tax rates are far less than taxes on salary or high amounts of capital treted as ineligible dividends.

In Brief, CRA does not want you to take capital off a balance sheet, but keep it employed ON the balance sheet, and CRA is satisfied.

Therefore smart planning will open doors for tax efficient succession planning for your family and provides options to negate asset sales triggering double or even triple taxation.
And, smart planning utilizes the Income Tax Act’s rules to get your hard earned capital into shareholders hands while you're alive either tax free or with a lot less tax paid during your lifetime and after death.

Bottom Line: Smart Planning will get you:
  • a strong balance sheet 
  • a company that will not be hurt or destroyed because of tax
  • happy shareholders 
  • a happy estate
  • satisfied CRA
  • Everybody wins!

Smart planning starts with us. Contact us now.

TIME IS NOT YOUR FRIEND – WE HAVE WAYS TO HELP
By Robert Hughes, Astra Business Corporation President 22 Jan, 2016

Astra, with their associates, have developed exit strategies using major banks and insurance companies to transfer ownership of your company in a manner similar to a department store ‘lay-a-way’ plan. There are two programs to choose from - MiniMax and SuperMax.

These programs offer a customized succession plans, which enable business owners to hand the reins of their business to a new generation or investor, while securing a TAX FREE retirement income stream, reducing risk, eliminating volatility and creating an estate legacy.

This is a strategy that has a stated time frame to transition the operation, and eventually, the ownership of the business. This succession plan maximizes the net cash flows for the remaining lives of the owner and spouse and if possible, creates a legacy for the surviving family members or investors.

Whereas you are looking to obtain a sale price of up to 4 to 5 times multiple, buyers have been reluctant to provide you with an acceptable purchase price with terms satisfactory to you. These alternate programs will provide you with an acceptable exit strategy with a financial benefit of  many times over what you had originally wanted  and while you are young enough to enjoy your retirement income.

I trust this is of interest. If so please advise and we will introduce you to our associate and start the process with a conference call where an in-depth detailed discussion will reveal how this program works.

Looking forward to working with you.

Click here for more information.

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