Selling a Business
Selling a Business
Selling a business is not as simple as selling a product or service. The following article will help shed some light on some, but not all, the issues one should consider while going through this type of transition.
Before the Sale
“In all things, success depends on previous preparation; and without such previous preparation, there is sure to be failure.” – Confucius
To be successful in finding a buyer, as well as getting the maximum value for your business, preparation for the sale of a business cannot be over stressed. Preparing for the sale should be done at least one year in advance if possible. This will give ample time to fix any deficiencies in the financial records, including any outstanding debt or taxes owing, while at the same time allowing for the improvement of key financial statements such as cash flows or income statements.
The documents expected by potential buyers are: previous tax returns (up to 5 years), financial statements, and a list of assets that will be included in the sale. During this time it will also be important to bring in a professional business appraiser to carry out a business valuation, which will help to set a dollar amount to the entirety of the business including things such as assets, inventory and what is known as ‘goodwill’. All the documents will then be copied and packaged together, to be presented to potential qualified buyers of the business.
During this phase, it is also wise to consider creating a transition plan. Typically, a transition plan focuses on the period after the completion of the sale. The previous owner of the business would stay for a predetermined length of time to ensure that new owner understands the operations of the business, while also having a smooth transition in relationships with suppliers and clients. Doing so will ensure that the new owner will be in a position to continue running the business profitably, while having minimum impact on overall operations.
During the Sale
There are a number of things that might need to be addressed during the sale of a business depending on the business structure and ownership, as each type will have a different impact on what needs to be done. For example:
- The Business Number that is associated with the seller of the business might need to be cancelled.
- If the business being sold has employees, the payroll account might need to be closed.
- Any GST/HST accounts that a business holds might also need to be closed.
It is important to contact a tax services office regarding any changes above, as well as any changes to a sole proprietorship, partnership, or board of director member. The CRA has a list of tax service offices and tax centres available on their website.