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Succession Fireside Chat: Is there a specific time when it’s easier to sell the business?

Succession Fireside Chat: Is there a specific time when it’s easier to sell the business?

Synopsis
3 Minute Read

When is the right time and what are the right reasons to sell your business? MNP’s Eben Luow and Craig Maloney discuss some of the key indicators that may help you decide if your business is ready for sale, including reaching key family milestones and business performance.

We also discuss best practices to prepare your business for sale, such as considering the business from the perspective of a potential buyer and investing in proper tax planning. These steps can help set you up for success and speed up the sale process when you put your business on the market.

You may be considering selling your family business — and wondering how you can identify the right time for a sale in an uncertain marketplace. What is the right time and what are the right reasons to sell your business?

In the third episode of our Succession Fireside Chat series, MNP’s Eben Luow and Craig Maloney discuss current trends in the market, provide guidance on the optimal timing and reasons to sell your business, and share insights on how to approach readiness for a sale.

Watch the full conversation above or read the article below to discover the key considerations for the sale of your business.

What are the trends in the market?

Business owners are facing challenges such as high interest rates, a talent shortage, and the threat of an economic downturn. However, the market has remained active despite the uncertain economic environment. We’ve identified these current trends in the marketplace:

Strong appetite for transactions

Private equity firms and corporations have strong cash reserves and are continuing to look for opportunities to consolidate or acquire businesses across various industries.

Slow deal closure

Deals may take longer to close due to economic uncertainty and contingent considerations involved with overall transactions. Preparing your business for sale can help increase buyer confidence and speed up the process.

Employee equity programs

Employee equity programs are becoming an increasingly more popular form of rewarding employees for their investment in the success of a business. These programs offer employees the option to buy into the ownership of the company.

When is the right time to sell my business?

There is no one-size-fits-all solution to identify the right time to sell your business. Your company is as unique as your family — and the timing should align with your goals and objectives. However, you’ve worked hard to build a successful company and it may be difficult to shift your focus from nurturing the growth of your business to preparing it for sale.

These key indicators can help you identify when you may be ready to sell your business:

Key milestones

Your family is integral to the success of your business — and it’s important to reassess your goals and objectives as they reach key milestones. For example, you may want to spend less time in the company to focus on your grandchildren, or a successor may have recently gained enough experience to run the business.

When you or your family members reach these key milestones, it may be the right time to reassign some of your roles and duties, sell a portion of your company, or put the business up for sale to ensure you meet your personal goals.

Business performance

The performance of your company has a great impact on its value. It may be a good time to sell if your business is consistently performing well and its financial performance is projected to continue in the future.

External factors

While the market is still active, external factors such as a talent shortage or high interest rates can have a significant impact on the value of your company. If you anticipate a disruption in your industry, consider selling your business before these factors affect its value.

How to ensure your business is ready for a sale

Selling your business is a complex process that involves a variety of factors. These best practices can help you overcome challenges and ensure your sale is successful:

Consider the prospective purchaser

Keep the perspective of a potential buyer in mind as you prepare your company for sale. For example, many business owners reduce their spending to increase the amount of cash in the company. However, it may be beneficial to continue spending in areas such as human capital — a potential buyer will consider the talent in your business and want to ensure it continues to perform after the purchase.

Additionally, it is important to consider the key attributes that set your business apart and identify areas where you can add value for a potential buyer. Securing key customer contracts or management contracts can increase buyer confidence and enhance the value of your business. Additionally, including your management team in strategic business planning and decisions can increase value by indicating your business will continue to perform after the sale.

If you are considering offering a buyout opportunity to your employees or management team, approach the sale from their perspective. You may want to set a lower transaction price than you would for a third-party buyer to ensure they are able to buy into ownership.

However, if your business is highly valuable, your employees or management team may need to explore options such as vendor financing or partnering with a private equity group to cover the cost. It is also important to approach the subject of a management buyout with your shareholders to ensure they are all on board before you proceed.

Invest in proper tax planning

Proper tax planning can help bring the most value to your business and its shareholders. Tax planning should begin two years in advance of when you intend to sell your business to help you avoid obstacles and capitalize on opportunities.

For example, there may be assets held in your company that you do not want to sell or that a prospective buyer may not wish to include in the purchase. Plan at least two years ahead of the sale of your business to ensure you transfer out those assets well in advance. This will ensure your business is a qualifying share business — enabling your shareholders to sell their shares and access the capital gains exemption.

Additionally, consider setting up a family trust to support estate planning and investigate tax planning opportunities such as the ability to multiply the lifetime capital gains exemption for small businesses.

Take our ExitSMART™ Succession Assessment

You’ve worked hard to create a successful business. Use our free assessment tool to discover if your succession planning is on the right track to get the most out of what you’ve built.

Take the next steps

Every business is different — and there’s no one-size-fits-all solution to identify the best time to sell your company. However, factors such as key family milestones, business performance, and market conditions can help indicate when it might be the right time to consider a sale. Additionally, investing in proper tax planning and considering the perspective of a potential buyer can help speed up the process when you put your business on the market.

Contact us

If you need support on your succession journey, contact a member of MNP’s Succession Services team. We can help you develop a succession strategy to increase the value of your business, minimize risks, and capitalize on what you’ve created.

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