Whether you’ve decided to retire or move on to a different opportunity, selling your company is a huge decision that requires some thoughtful planning and consideration. It can be a long, complicated and frustrating process, so avoid these seven common mistakes people make when selling a small business to ensure a smoother sale.
We’ve put together a short list of steps to take before selling your business. Even if selling your company is in the distant future, starting the process now will ensure a smoother transition out of your company.
1. Create a succession plan
Plan ahead! Succession planning includes a lot of complexities such as business valuation, legal and tax considerations, as well as family matters and coaching future successors. All of this takes a lot of time, so planning should begin 18 to 24 months before you decide to sell your company in some cases.
A strategic succession plan will ensure the smooth transfer of ownership and allow you to avoid any unforeseen issues or last-minute decisions that could be costly to you.
A succession plan typically includes the following:
- Business goals
- A contingency plan
- A training plan
- Corporate structure
- Business valuation
- An exit strategy timeline
We have more information here about how to create a successful succession plan.
2. Perform a business valuation
You need to figure out how much your company is worth. Often business owners are too close to their companies to make an objective analysis of their business’ value.
In order to get a clear picture of the value of your company, you should research your competitors, review your assets and analyze your previous earnings and profits.
Often, the most objective approach to valuing a business is to obtain the services of a professional valuation specialist who can offer some outside perspective.
3. Prepare documents
A prospective buyer will very likely delve into your business’ financial and operational history in order to gain insight into whether your business is a profitable investment. So be prepared with all the necessary information and documentation that demonstrates the successful performance of your business in order to negotiate the price you’re looking for.
Consider having the following documents prepared for potential buyers to review:
- Current balance sheet
- Cash flow statement
- Profit & loss statements for the current and previous 2-3 years
- Business tax returns for the past 2-3 years
- Copy of current lease agreement
- Insurance policies
- Supplier and distributor contracts
- Employment contracts
- Offer to purchase agreement
You can also find some helpful information on the Government of Canada website with additional aspects to consider when selling your company.
There is more to selling a small business than finding the right buyer. To ensure the sale of your small business runs smoothly, contact Benchmark Law today at 604-227-2892. Our small business lawyers in Vancouver can assist you with:
- Preparing or reviewing purchase and sale agreements
- Conducting due diligence
- Preparing the necessary closing documents
- Facilitating the transfer of funds