BUSINESS SELLER'S GUIDE
HOW TO SELL A BUSINESS IN BC?
Every business is different from the next and the process of transitioning out of the business is just as unique. When you boil it down, there are 2 basic routes when selling a business:
1. Sell to employees or family.
Selling to family or employees is typically a faster and easier path. The buyer is usually familiar with the business so the process skips ahead to the appraisal (if needed) and a lawyer to complete the sale.
2. Sell to the open market.
This can be done a) by yourself
- When selling a business yourself, you will need to do the preparation, marketing, qualifying and negotiation yourself. Platforms like Business Sellers Canada provide templates for marketing and has a captive audience of potential buyers to help your business be noticed.
or b) with a Broker
- The Broker handles a lot of the advertising, screening of the buyers and negotiating so you can stay focused on keeping your business running in tip top shape, but of course, there is usually a fee for this service.
Visit our Seller's Guide for more details on the process of selling a business.
WHAT DO I NEED TO SELL A BUSINESS IN BC?
In order to sell a Business, you will need the following documentation:
- Certificate of incorporation (if incorporated)
- 3-5 years of financials (profit & loss statements, balance sheets and monthly income & expense reports)
- List of equipment and assets included in the sale with resale values
- List of equipment and assets not included in the sale with resale values
- Lease (if renting)
- Title search (if property is to be sold)
- Marketing material (summary of the business)
WHO DO I NEED TO SELL A BUSINESS IN BC?
Who you need to work with when selling a business depends on the business being sold. Here is a list of professionals who are usually involved in business transactions and when they're services are needed:
A lawyer is essential to all deals and is needed to finalize the purchase agreement between the buyer and seller.
Is typically needed in order to prepare financials and can also provide a valuation of a business.
Can be used instead of an accountant to provide an appraisal of a business.
Can be used to represent either buyer or seller and is able to navigate the process and negotiate on your behalf. Some Brokers are certified and able to provide a valuation on the business.
Real Estate Agent:
Able to valuate or appraise real estate when it is applicable. They can also help with negotiating leases.
HOW DO I SELL A BUSINESS WITH NO PROFIT?
Even without a profit it's still possible to sell a business. If this is the case, the seller would likely be looking at an asset sale and the value of the business would be based on the resale value of the assets of a business plus the cost of inventory.
HOW MUCH SHOULD I SELL MY BUSINESS FOR?
There are many ways to value a business and the best method to use is strongly dependent on the business. It's highly recommended that you speak with your Accountant or Business Broker on which method is best for you.
HOW MUCH TAX WILL I PAY WHEN I SELL MY BUSINESS?
Taxation rates are unique to each owner and business and as much as I would like to provide an exact answer, I'm not able to. It's highly recommended that you speak with your Accountant to receive advice specific to your scenario. Be sure to ask about the capital gains exemption and if it applies to your sale.
HOW LONG DOES IT TAKE TO SELL A BUSINESS?
On average, it takes roughly 7-9 months to sell a business but that depends largely on the business, the price and the amount of promotion it receives.
If your business is specialized and specific training or certification is required to operate the business then it can take longer for a person with the needed credentials to be in a position to purchase.
Simply put, the more people that see your ad the more chances of the right buyer will find you so be sure to advertise high and low!
Be sure to set your asking price to a value that makes sense. Take a minute and put yourself in the buyer's shoes and ask, "Would I pay this much for my business?". Also consider how many years it would take to pay it off.
HOW MUCH TRAINING SHOULD I PROVIDE TO THE BUYER?
This questions is best answered by the seller. How long do you think it would take for you to share your knowledge of the operations? A suggestion could be a full sales or order cycle so the buyer can learn the full process.
The training period is typically for the buyer to learn the procedures needed to keep the business alive and moving forward. Individuals usually spend their whole professional career learning the ins and outs of their industry so it's not really practical to expect a full education. However, any tips and tricks you can share along the way will certainly be appreciated by the buyer.
SHOULD I PROVIDE SELLER OR VENDER FINANCING?
You might be asked at some point if you are willing to provide seller financing, also know as vender financing or vender takeback.
What is this?
It is a form of loan where you, the seller, takes a similar role as a bank and provide some or all the capital required to make the purchase of your business.
This can be a risky move because you are essentially investing in the new buyer who you likely just met but just like a bank, you can mitigate the risk by:
- Doing a background check and interview
- Require full asking price (or more)
- Set an applicable interest rate and term
- Require some sort of security (ie mortgage on their home)
Some businesses and industries struggle to receive financing from banks so seller financing may be the only option available. Additionally, banks like to see that the previous owner is willing to support the transaction and may be inclined to lend more if a portion is being financed by the seller.
There are pros and cons to the process and it can benefit both parties but be sure to only take on the level of risk you're comfortable with. Your Accountant or Business Broker will be able to assist with more specific advice to your scenario.
WHAT IS THE PROCESS OF SELLING A BUSINESS?
Here is a list of general steps in the selling process for a business owner:
Step 1 - Preparation
Preparing a business for sale is not unlike preparing a home for sale. You'll want to make sure that it is presentable physically but also financially. In addition to having your accountant prepare the past 3-5 years of financials here are a couple questions in need of answers:
What is being sold? - Be sure to understand the 2 types of business sales and how they impact you.
What is not being sold? - If there are items/assets to be excluded from the sale, consider removing them from the business before you advertise it for sale so not to complicate the transition later on.
How much am I selling it for? - Be sure to consult your Accountant or Business Broker on an appropriate price for your business.
Your Accountant and Business Broker will play a key role in preparing the documents necessary for a sale and positioning you for the most effective exit.
Step 2 - List the Business for Sale
It's a little hard to sell a business (or anything really) if no one knows it's for sale. Be sure to have your advertisement seen by as many prospects a possible because the more buyers who see your business the better chances of it selling.
TIP - Clients and employees might receive the wrong impression if they find out about the sale so be sure to keep it confidential and use general locations and photos that are unable to identify your business.
Step 3 - Qualify Buyers
Once you receive an inquiry about your business it's important to learn a little about the buyer before handing over sensitive information. This is to ensure the person is who they say they are, not your competitor simply looking for information and they they actually have the means to buy the business.
TIP - It's ok to ask them how they plan to pay for the business. Most financial institutes in Canada require 30-40% down payment for a business loan.
Step 4 - Negotiation Offer
Keep in mind when negotiating that value is not just money. Time offered in training, closing dates and even assets can all provide value to each party of a negotiation.
Step 5- Due Diligence
This step is for the buyer to look at the business under a microscope and really understand it. As the seller, you will typically need to provide access to financials, tax records, employees (if applicable), the building...etc.
Step 6 - Finalize Sale
After an agreement has been reached and the buyer satisfied with their due diligence the agreement is then passed along to the lawyers to finalize and to transfer possession.
Step 7 - Transition
Almost there! Once the sale is completed there is typically a transition period where you, as the former owner, will be present to train and transition the business over to the new owner. At the very least, you would make an introduction to the employees and suppliers if applicable.
WHAT IS AN ASSET SALE V.S. A SHARE SALE?
This is a very important question to understand before selling a business and the quick answer is:
A share sale is a purchase of the shares to the corporation where as an asset sale is the purchase of just the assets (tangible or intangible) of the business.
Why does this matter?
One of the key differences is taxation. For a seller, if you sell a business as an asset sale the profits are taxed twice. Once when the corporation sells the assets and again when the seller withdraws the profits from the corporation. Capital gains exemptions may also apply and save the seller from paying some or all of the taxes from a share sale.
Buyers typically prefer an asset sale because they can likely depreciate the asset purchase amount.
It's very important to consult your Accountant a head of time to learn how each sale process would affect your specific scenario.