Selling your business is one of the most important decisions you’ll face as an entrepreneur. You’ve spent long hours building it into a viable enterprise. And, with a little preparation, you can increase your business’ value and make sure you get the best sale price. Below, we examine the different aspects of selling your business you will need to consider.
Taxes When Selling Your Business
Will you be selling the assets of the business, or shares of the company that runs the business? The first is known as an asset sale; the second is a share sale. Both have their own tax advantages.
Asset Sales
In an asset sale, a business is selling tangible and intangible assets. Tangible assets are things such as land, buildings, equipment and inventory. Intangible assets are concepts such as the goodwill your business has accrued, customer lists, patents, copyrights and trademarks. If your business is not incorporated, an asset sale is your only selling option since there are no share certificates. The tax advantage of an asset sale is that you can negotiate the price paid for each asset, so you receive the most desirable tax benefit. You also don’t inherit any of the liabilities of the existing business.
Share Sales
If your business is incorporated, you have the option to sell shares. This share purchase will result in all assets of the business, including the name, transferring to the buyer. With all the assets, also comes the liabilities. The buyer will be on the hook for any unforeseen costs, such as back taxes, that have yet to be paid. A share sale can be extremely beneficial in tax terms as you might not have to pay any tax at all on the sale. If you are a Canadian resident you are entitled to a lifetime exemption of $750,000 on capital gains. This can be used to cover the sale.
Increasing Your Business Value
Even if thoughts of selling are far away, there’s no time like the present to get your business in the best possible shape to sell. The changes you make will have a positive impact on the profitability of your business, whether you ultimately decide to sell or not.
Seek Outside Help
Enlist the help of an expert advisor who can talk you through the process and devise an efficient exit strategy. At Small Business BC, we offer one-on-one consultations with a business broker under our Talk to an Expert advisory service.
Look for Efficiencies
Nobody wants to buy a bloated and inefficient business. Look for ways to cut down on costs and increase operational efficiencies. Your marketing strategy can provide an easy place to start. Devise a fresh, integrated marketing plan that allows you to hone in on your target market. Also consider expanding your market by moving into new provinces or countries by exporting.
Continue to Invest
Don’t fall into that “last day of school” vibe with your business. Once you’ve made up your mind to sell, it’s imperative you continue to invest in new equipment, maintenance and improvements. Don’t take your foot off the accelerator. Potential buyers will notice if you’ve been neglecting aspects of the business.
Don’t be Irreplaceable
If most of the processes and knowledge regarding your business reside in your head, it’s not much use to a potential buyer. Develop clear and teachable processes for the day-to-day running of your business and empower your staff to run the business in your absence. Think of yourself as just one cog in a machine, rather than the machine itself. If you provide most of the value of a business, that value diminishes when you walk out the door.
Ways to Sell Your Business
Though it probably feels like a massive deal to you, selling a business is a common transaction that happens every single day. As a result, there are several different ways to make it happen.
You can:
- Enlist the services of a business broker
- Enquire if your competitors are interested
- Present yourself as an acquisition target
- Use an industry consolidator
Like any other large transaction, patience is key. If you try to offload your business in a hurry, or without preparing adequately, you won’t realize the return you are hoping for.