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selling a business

Selling a Business 101

Selling a business can be an exhilarating process. Whether you are maximizing the profit of your first start-up to embark on a new venture, or selling the company you initiated four decades earlier, emotions may run high.  In this highly charged process, it is more important than ever to ensure that you are being appropriately guided by an experienced team of accountants, lawyers, valuators, and investment advisors. Your team of professionals can help ensure that the thrilling moments are not marred by a costly mistake that could jeopardize your future plans.

In this article we will explore some of the implications and considerations that go into Selling a Business. If you are looking for more information on Buying a Business, check out our article here

Selling a Business

If you are selling a business, you’ll want to articulate the reason for your reason for selling as this will likely be the first question prospective buyers will ask. Why are you selling at this time? Did someone pass away? Are you, the founder, deciding to retire? Are you simply ready to move on to something else? Or is there another financial motivation at play that buyers will learn about during the due diligence process.

Much like selling a house, there are steps that you can take to prepare your business for sale. Organizing your internal data is a great start so that you can have a clearer picture even for yourself of your assets, liabilities, revenue, expenses, and any trends over time. You can also bring in a valuator to assess the value of the business and offer a more realistic perspective on what it may be worth.

If you’re hungry for a buyer and looking to entertain a search, you may want to consider hiring a broker. Brokers generally have connections within buyer and seller networks, and they may know or be able to find a buyer who is a great fit. Brokers will charge a commission, so consider the cost-benefit of hiring one before making any decisions.

As the buyer conducts due diligence, that will mean getting all of your proverbial ducks in a row. This means preparing financial statements, tax documents, lease agreements, employee contracts, vendor contracts, and any other key documents to disclose for a potential buyer to thoroughly examine. Remember that a potential buyer may not like what they see and decide not to proceed with the deal. If there are other potential buyers interested, you may be able to keep the lines of communication open until a deal is done.

The documents exchanged may contain sensitive information, and non-disclosure agreements will be crucially important. You’re showing prospective buyers some of your most confidential information, so these agreements need to be drafted by your business lawyer and executed properly. These agreements can cover how information is used and shared and any penalties that may be in place for violating the agreement (although these can be hard to enforce).

Your legal team will be instrumental throughout the sale transaction. Your business lawyer will work closely with the buyer’s lawyers to ensure that the agreements consider all necessary pieces and that a payment schedule is firmly in place. They can also help structure the deal in ways that protect your interests and set you up for success in whatever you do next.

The Share Purchase or Asset Purchase Agreement will determine if and how much the buyer can claim against the seller for any misrepresentations. It is important to note that while your corporation may protect you from personal liability, many Share Purchase Agreements are entered into on a personal capacity. This means that you personally will have to pay if the buyer has a claim against you. Your legal team will aid in reviewing the Agreement not only to help you avoid potential liability, but to help you assess your risks in the event of misrepresentations. A minor change in the wording in your agreement from “the Corporation has no outstanding debt” to “the Vendor believes the Corporation has no outstanding debt” could save you a substantial sum of money.

Aside from personal liability, one of the most important aspects of a sale of a business from the seller’s perspective is getting paid. Again, this may seem like a straightforward process, but in many business sales, it involves hidden complexities. If the sale of your business involves promises of payments, how do you ensure that you get paid, and the purchaser does not run off with your money and business? If the purchaser runs out of money to pay you, how do you recover the maximum amount possible while keeping a priority over other creditors? An experienced legal team can help with all these issues.

Building the Right Team

Selling a business is a large undertaking, and working with a skilled team of professionals will make the process run much smoother. Lawyers are often called on as strategic advisors in these situations, and with their experience can take a holistic view of the transaction and advise their client on what steps may be best for them. 

If you’re looking to buy a business or sell your business, work with an experienced business lawyer. Our firm has been working with businesses of all sizes throughout the Cambridge, Kitchener, and Waterloo Regions for decades, and we’re well-equipped to handle all sizes and styles of transactions. Contact us today to set up a consultation.