You’ve invested in starting and growing your $6M Canadian business, and you’ve just received an acquisition offer.
The price looks good until the accountant reveals you didn’t structure it for LCGE eligibility two years ago, and you probably have to part with $1.4M after sales taxes.
That is an example of a scenario most businesses find themselves in.
When selling a business, you require careful planning and execution. Although each sale is unique, you can approach the process strategically and achieve a successful exit from your business.
Discover the best timing, the key reasons to sell, and how to prepare for a successful sale to secure your financial future. You’ll also learn how to maximize your odds and the mistakes to avoid.
TL;DR – How to Sell Your Business
Here are the 7 Key steps to help you achieve the best sales for your business:
- Assess your business financials
- Assemble your dream advisory team
- Prepare your business for sale
- Identify and engage buyers
- Structure and negotiate the deal terms
- Complete the due diligence
- Close the deal
Even with these steps, selling your business should not be left to chance. At JS CPA Strategic Solutions, we have experience helping business owners achieve financial stability and navigate the sale of their businesses.
At JS CPA Strategic Solutions, our Growth Mosaic Strategy integrates M&A advisory, fractional CFO services, exit planning, and tax structuring.
We take a proactive approach to ensure your business is positioned for every stage of your exit. Our team helps you maximize your business value, structure favorable terms, conduct due diligence, and negotiate with confidence.
Schedule a consultation today to get the best terms for your deal and protect your financial future and legacy.
When Is the Right Time to Sell Your Business?
The timing of selling your business affects everything, including the business valuation and who the right buyer will be.
Here are some factors that can make it the right time to sell your business:
Business is Thriving
Sell your business when it’s thriving, that is, when there are consistent profits and revenue, a stable customer base, and a growing demand in your industry. Besides, a business is at its peak value when it has a scalable model, minimal outstanding liabilities, and efficient operating systems in place. These conditions make your business attractive to buyers and can justify a higher payout.
An Offer from a Buyer
You might have received an offer from a potential buyer, which could be a strong signal to close the deal. However, it’s important to check whether they are a good fit for your employees and customers, and whether they align with your business’s values.
Out of Necessity
You can consider selling your business sooner than planned due to burnout or health issues. You can also step back from running it. Other reasons include declining profits, changing market conditions, or the business is straining your personal finances.
Business Has Plateaued
Maybe your business isn’t growing anymore, and this may be a sign to sell it. Revenue and customer growth have probably stalled. It could be that there is tough competition and your rivals have more resources. At other times, you may lack the capital to enter new markets.
Deal Structure Options When Selling a Business
It’s important to structure your business sale to account for payment terms and potential tax implications for both parties.
Let’s explore the common options and how they favor the seller and the disadvantages they pose:
| Deal Structure | What It Is | Seller Advantages | Seller Disadvantages |
| Asset Sale | It’s the sale of only your business’s assets, not the entity itself. | You’ll retain the unwanted assets. | You may miss out on the tax-free portion through the LCGE. |
| Share Sale | It’s the transfer of the entire company, including the contracts, assets, and liabilities. | It allows capital gains tax treatment, tax reduction if you qualify for LCGE, and a clean exit for the seller. | The process can be complex and might require a tax specialist to navigate. |
| Earn Out | It ties part of the payment to the business’s future performance. | You could retain ownership of the new or current entity and benefit from future growth. | It requires ongoing involvement in the business and brings the risk of not getting future payments. |
| Seller Financing | It extends the outstanding debt to the buyer that is covered by the purchase price. | It allows a quick sale | It may create additional risks, such as your payment not being received or being delayed |
| Equity Rollover or Retained Interest | As a seller, you retain a stake in the new entity. | You can benefit from future profits and ensure a smooth transition. | It reduces immediate cash proceeds and might be exposed to business performance. |
How to Sell Your Business Step by Step
You need to craft an exit plan to protect your legacy and maximize your business value.
Here are the 7 steps to follow:
1. Assess Your Business Financials
Gather the necessary documents and address any issues that could delay the sale. You should gather 3 to 5 years of financial statements, profit &loss reports, and tax returns. Besides, compile outstanding loans and lease agreements and secure your intellectual property rights, such as patents, trademarks, and proprietary processes.
2. Assemble Your Dream Advisory Team
The sale of a business is a complex process, and that’s why you should consider professional guidance. Therefore, you can assemble legal advisors, tax and compliance specialists, and M&A advisors to prepare for every stage of the transaction.
These experts can help you navigate valuations, position your business in the market, draft contracts, assess risks, and negotiate better outcomes.
3. Prepare Your Business for Sale
If your business is heavily reliant on your skills and experience, you should create systems and repeatable processes that make it easy to sell.
4. Identify and Engage Buyers
Create the ideal-fit buyer: for example, they have acquired companies similar to yours before, prequalify for financing, and want to keep your team employed after the sale. Consider strategic buyers, such as industry competitors, employees, and family members.
5. Structure and Negotiate the Deal Terms
Each Canadian province, such as Quebec, Ontario, and Alberta, has its own business laws. So, it’s essential to work with a lawyer who understands the legal structure of your business.
6. Complete the Due Diligence
Not every buyer is serious. Pre-qualify buyers by requesting proof of funds, having them sign a Non-Disclosure Agreement (NDA), and conducting due diligence. Be prepared to provide financial statements, answer operational questions, and share key business insights.
7. Close the Deal
Request a Letter of Intent (LOI) from the buyer and consult a legal expert to review the contract before signing. Allow room for negotiations through your respective lawyers, but stand firm on your asking price.
Why Selling a Business Requires Strategic Planning
Strategic planning helps you protect your business valuation, attract the right buyers, and close a successful deal on your terms.
Here’s why it’s crucial:
- Adapting to Market Conditions: The business environment is constantly changing, and you need a strategic plan to navigate competitive pressures, external factors such as tariffs, and shifts in customer behavior.
- Monitoring Business Performance: A plan is essential for tracking key performance indicators (KPIs) toward your goals. You can easily identify areas that need improvement in your business and adjust your strategy accordingly.
- Building Buyer Confidence: You need a strategic plan to demonstrate your business has a track record of growth and stability. You need to show you’ve been managing risk and increasing your business value over time. That way, you can instill confidence in potential buyers for future success.
- Maximizing the Exit Value: A strategic plan is important for achieving your target valuation, enhancing your business appeal to buyers, and increasing the likelihood of securing the best sales price.
Common Mistakes That Cost Sellers Money
Unfortunately, most business owners lose significant value or the deals altogether because they overlook the key parts of selling a business.
Here are the common mistakes sellers make when exiting a business:
- Failing to Plan the Exit: Without planning an exit 2 to 3 years in advance, you don’t have time to clean up your business’s financials, build EBITDA, and make operational improvements. This can force a business owner to accept unfavorable terms.
- Not Knowing Your Business Worth: When a business owner lacks a solid understanding of their company, they can miss opportunities during negotiations and set unrealistic expectations.
- Poor Financial Records: Another common mistake is failing to organize financial statements, details of outstanding loans, and missing monthly reconciliations. Their books may not be accurate and GAAP-compliant, which can affect their credibility.
- Waiting Too Long to Sell: If your business is declining and you take too long to sell, it can significantly reduce your valuation and prompt buyers to discount the price.
- Failing to Identify Problems: Failing to address issues such as legal matters, employee disputes, and debt can disrupt the sale process, especially during due diligence.
- Selling Without Professional Guidance: It’s risky to sell your business alone because you won’t price it accurately, you may fail to identify qualified buyers, and you may not negotiate better terms.
Frequently Asked Questions (FAQs)
Most questions arise when you’re considering selling your business. Here are some of the answers to the commonly asked questions in this area:
How Long Does It Take to Sell a Business in Canada?
The simple answer is that there is no single timeline. Some businesses take weeks, others take months, while some never sell at all.
While the average time to sell a business in Canada is 6 to 12 months from preparation to closing, several factors affect the sale process. They include price expectations, the flexibility of the deal terms, and the marketing strategy for selling the business.
Should I Sell My Business on My Own or with Advisors?
Selling your business requires broad expertise, immense time, and carries confidentiality risks. Therefore, managing the sales process yourself can be time-consuming and lead to deals falling apart.
So engaging an advisor can help you navigate the sale and exit your business successfully.
How Much Tax Will I Pay When I Sell My Business?
The tax you pay when you sell your business depends on how your sale is structured, your business type, and whether you qualify for exemptions, such as the Lifetime Capital Gains Exemption (LCGE) on Qualified Small Business Corporation (QSBC) shares.
With strategic tax structuring, you can reduce your tax liability and increase your net tax gain and income.
Can I Sell a Business with Debt?
The answer is yes, you can sell a business with debt. Here are the options you can explore:
- Consider seller financing, which lets you extend the loan to the buyer to cover all or part of the purchase price.
- Check opportunities to reduce or pay the outstanding debt before listing your business for sale.
Conclusion
The process of selling a business takes time and effort. It’s important to navigate the complexities of selling your business in Canada effectively.
Remember, a sale starts with knowing your business’s true worth.
At JS CPA Strategic Solutions, we deliver CPA strategic insights to help you plan your exit, ready for M&A, and negotiate with buyers. Our business valuation services give you tailored expert reports that clarify your market value, earnings potential, and growth opportunities.
Book a valuation strategy session today to sell your business from an informed and confident position.