It's not uncommon for business owners to find themselves at some point seriously considering the sale of their business, often under the influence of various motivations such as retirement planning, the desire to explore new professional horizons, or the desire to start up new projects.
However, the process of selling a business is a complex one, requiring careful attention to a multitude of parameters in order to avoid any potential disputes or complications in the future.
| In this article, JuriGo explains all the aspects to consider in order to successfully sell a business in Ontario ! |
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What are the factors to consider to successfully sell a business?
To sell a business successfully in Ontario, it's essential to consider several key aspects and take strategic steps. The following actions are vital to ensuring a smooth and effective sale process:
Choose how to sell the business!
Before considering selling a business, it's important to reflect on the most suitable method for its sale. A business can be sold through various methods, but two primary options stand out: asset sale and share sale.
Asset sale:
Selling a business through an asset sale entail offering all or a portion of the company's assets for sale. These assets may include tangible items like inventory, equipment, and real estate, as well as intangible assets such as goodwill and trademarks.
In this type of transaction, the seller retains legal ownership of the business, while the buyer gains control over the specific assets being sold without assuming any responsibility for the seller. This makes asset sales an appealing option for buyers seeking to mitigate risk.
Share sale:
Another method of selling a business is to sell the company's shares, which involves a transfer of ownership through the sale of shares. In this process, the company remains intact while ownership changes hands. A share sale is administratively simpler than an asset sale, as it involves a simple transfer of shares.
In the case of a share sale, all the target company's assets and liabilities remain with it, allowing the seller to discharge its liabilities while the buyer assumes them. Share sales are generally less complex than asset sales, as they only require the transfer of shares rather than the documentation of individual assets.
As a result, share sales offer a simplified approach to transferring ownership with fewer administrative requirements.
Below is a table outlining the key distinctions between an asset sale and a share sale:
| Components of a business | Asset sale | Share sale |
|---|---|---|
| Assets | In an asset sale, the buyer gains ownership of all company assets but can also select which ones to purchase, often leaving less desirable assets with the seller. | In a share sale, the ownership of the business is transferred by selling the shares of the company itself. This means that the buyer becomes the new owner of the entire business entity, including all its assets. |
| Employees | In an asset sale, the buyer can select which employees to retain and determine their post-closing employment terms as the employer's identity changes. | In a share sale, the existing employee relationships remain intact as there is no alteration in the employer's identity, eliminating the need for issuing new employment offers to employees. |
| Contractual obligations | In an asset sale, the buyer can selectively adopt contractual obligations, leaving undesirable contracts with the seller. The buyer is not obliged to honour the seller's previous contractual commitments. | In a share sale, the buyer must respect the contractual commitments of the previous owner. Although this poses problems for honouring past commitments, there is no need to renegotiate contracts or acquire licenses and permits. This facilitates business continuity. |
| Debts | In an asset sale, the buyer is not obliged to assume the debts. | In a share sale, the buyer assumes all the company's debts, since these debts remain with the company's shares after the sale. |
Selling shares is obviously a more advantageous option for the seller, while selling assets is much more advantageous for the buyer.
Therefore, someone wanting to sell their business will have to decide, based on several factors such as ease of sale, the company's financial situation, and others, whether it is more advantageous to sell the shares, a method more beneficial for them, or to sell the assets to attract buyers more easily.
Determining the value of the business!
To sell a business successfully, it's crucial to determine its value. Here are some key factors to consider:
- Location
- Industry sector
- Market conditions
- Sales trends
- Comparable business
- Size and maturity of the business
- Stability of past and projected profits and cash flows
- Customer and supplier diversification
- Intellectual property
- Reliance on key owners and personnel
- Staff mobilization
Moreover, to determine the total value of the company, several methods are used:
- Assessing asset value: Start by calculating the total worth of all business assets, then subtract any debts or liabilities. This provides a fundamental baseline valuation of the business's tangible assets.
- Revenue-based valuation: Determine the annual sales figures and compare them with industry benchmarks. Typically, the business's worth is calculated as a multiple of its sales, providing insight into its market value relative to similar businesses in the industry.
- Earnings multiples: Forecast future earnings and apply a multiple, such as the price-to-earnings ratio, to determine the business's value. This method offers a glimpse into the company's potential profitability and attractiveness to potential buyers.
- Discounted cash-flow analysis: Project the business's future cash flows and discount them back to their present value using a net present value calculation. This approach accounts for the time value of money and provides a comprehensive view of the business's financial health.
- Strategic value: Consider factors beyond financial metrics, such as the geographical location of the business and potential synergies with potential acquirers. This analysis delves into the strategic advantages the business may offer to interested buyers, influencing its overall value in the market.
Each valuation method provides valuable insights, aiding sellers in pricing and negotiations. However, seeking professional services is crucial for accurate business evaluation!
Valuation experts offer expertise and guidance, ensuring sellers understand their business's true worth and navigate the selling process effectively. With their support, sellers can optimize value and maximize returns, increasing the likelihood of a successful sale.
Seek the assistance of professionals!
As mentioned above, to determine the value of a business, it's important to seek professional help. However, for all stages in the sale of a business, it is essential to seek the help of various professionals, such as :
- Business lawyer: A business lawyer plays a critical role throughout the process of selling a business. They provide indispensable legal guidance during due diligence, ensuring that all necessary documents are in order and that the transaction complies with relevant Ontarian and Canadians laws and regulations.
Additionally, they negotiate purchase agreements on behalf of the seller, ensuring that the terms are fair and legally binding. Should any legal issues arise during the transaction, such as disputes or contractual breaches, the business lawyer is responsible for addressing them promptly and effectively.
- Accountant: They play a crucial role in preparing financial statements, projections, and necessary documents for due diligence. Additionally, they provide insights into tax implications associated with the sale.
- Evaluator: Their expertise is invaluable in accurately assessing the worth of the business, as they utilize various methodologies and tools to analyze financial data, market trends, and industry standards.
- Commercial realtor: They provide assistance with the real estate aspects of the sale, offering advice on how to present properties to maximize their attractiveness to potential buyers. This may involve staging properties effectively, highlighting key features, and addressing any issues that could detract from their appeal.
By leveraging their expertise in the real estate market, commercial realtors help sellers optimize the presentation of their properties, ultimately facilitating a smoother and more successful sales process.
Depending on the seller's needs, various professionals can assist in facilitating the sale of a business. These experts offer specialized skills to ensure a smooth and optimized process that aligns with the seller's goals. Leveraging their expertise enables sellers to navigate transactions effectively and enhance the value of their business.
Understanding all vital aspects of the business!
With advice from professionals, entrepreneurs looking to sell their businesses must understand all crucial aspects. They have to identify and know all the strengths and weaknesses of their business.
Once weaknesses have been identified, it's essential to implement corrective measures. An entrepreneur who possesses comprehensive knowledge of their business and its various components is better positioned to negotiate effectively with potential buyers.
Furthermore, such familiarity with the business enhances the sales process, as buyers typically place greater trust in sellers who demonstrate a thorough understanding of their business's aspects. This depth of understanding not only facilitates negotiations but also instills confidence in prospective buyers, ultimately making the selling process easier.
Find a buyer!
When it comes to selling a business, finding the right buyer is crucial! Entrepreneurs have various methods at their disposal for identifying potential buyers:
Hiring a business broker or investment baker:
Hiring a business broker or investment banker connects sellers with a wide array of qualified buyers. These experts discreetly engage potential buyers and guide sellers through the complexities of the sale, ensuring a seamless process. Especially beneficial for larger companies, brokers tap into extensive networks to discreetly approach potential buyers.
Working with a broker is similar to employing a real estate agent for property sales, offering confidentiality and expertise to identify the ideal buyer efficiently.
Using industry networking:
Using industry connections, like competitors or businesses in the value chain, can reveal strategic buyers looking to expand market influence or leverage synergies. These potential buyers often offer better deals and mutually beneficial prospects.
Competitors or firms within your value chain may express interest in acquiring your business with the intention of diversifying their product lineup or expanding their market share. By acquiring your business, they aim to enhance their competitive position and gain access to new customer segments or distribution channels.
This strategic approach to acquisition can lead to a win-win situation for both parties involved, facilitating growth and creating value in the process.
Using online platforms:
Publishing the company on business sales platforms exposes it to a larger number of potential buyers. However, sellers need to be careful to maintain confidentiality and check the reliability of the platform.
While online platforms are a convenient option for reaching a wide audience, especially for small business owners, it's essential to examine the platform carefully and consider any potential confidentiality issues before proceeding.
There are many ways to find the ideal buyer for a business. Utilizing available resources effectively and leveraging the expertise of skilled professionals can greatly simplify the process of identifying the right buyer!
JuriGo assists you in finding a business lawyer to help you sell your business!
If you're considering selling your business, it's highly advisable to seek the services of a business lawyer. Their expertise ensures that all legal aspects of the sale are handled meticulously, safeguarding your interests and facilitating a smooth transaction. A skilled lawyer in this field will navigate negotiations on your behalf and meticulously draft essential legal documents.
Engaging a business lawyer is a strategic move to ensure that the sale process is conducted efficiently and effectively. Their knowledge of business law can help mitigate risks and ensure compliance with regulations. Don't underestimate the importance of legal guidance in achieving a successful sale of your business.
Looking to sell your business and in need of a lawyer? JuriGo is a simple, fast and free way to find a business lawyer! All you have to do is fill in our request form and tell us about your situation.
Following your request, we will quickly put you in touch with a lawyer near you. There is no obligation on your part!