Sometimes one is forced to sell their business due to failing health or for financial reasons. If you are fortunate enough to be in a position to plan in advance for the sale of your business, this article reviews some items you should consider addressing prior to marketing your business for sale.
Prior to entering into any kind of agreement (including a Letter of Intent), you should obtain tax advice from a qualified accountant.
That person might recommend a certain way to structure the transaction, which may differ from a purchaser’s preferences. While you are at it, ensure that all of your tax filings, remittances, and source deductions are up to date.
If your business is required to be registered with the WSIB, ensure that the registration is in good standing and that the information supplied to the WSIB in regard to your employees (i.e., date of initial hire) is all accurate.
3. Minute Book
If you run your business via a corporation, you will want to ensure the Minute Book is kept current at all times. If the Minute Book is out of date, it should be brought up to current (and maintained properly).
This is especially important in the case of a share sale, as deficiencies in the Minute Book could materially impact the price a purchaser is willing to pay.
4. The Future
Consider what kind of involvement (if any) you might want to have in the business going forward. Sometimes a purchaser will want to have the prior owner involved for a period of time in order to assist with the transition.
It is helpful to have an idea of where your boundaries may lie prior to having the discussion.
Once you start marketing your business for sale, you might make contact with any number of interested parties. Of course, they would not be willing to enter into an agreement to purchase the business prior to understanding its important features, such as profitability, operations, etc.
Before disclosing any information, it is advisable that a prospective buyer sign a Confidentiality and Non-Disclosure Agreement to ensure that, if they do not follow through with the purchase, they do not use the information which was disclosed to them to the detriment of your business.
6. Review Important Contracts
Review your premises lease, equipment leases, supplier agreements, financing/loan agreements, and, if you have business partners, partnership, or shareholder agreements, to determine how a potential sale of the business would affect the various legal relationships that exist and allow your business to function.
Some of these agreements may require the other party to consent to the sale, and some agreements may require you to remain liable for the term of the agreement, even if it is assigned to a buyer.
If an inventory is to be transferred as part of the sale, is your inventory counting system reasonably up to date? Are you able to satisfy a purchaser as to what is there and the cost of each item?
This can be an incredibly time-consuming task, made even more difficult if your records have not been maintained. Get a head start on organizing your inventory records if you want to receive full value for your business.
Do you need help with any area of business law when preparing your business for sale? Schedule a consultation today!