How To Sell A Business
I have sold many different types of business enterprises over the past 35 years. They have ranged from service stations, campgrounds, dance halls and farms to trucking, taverns and slaughter houses. Each business brings it’s own set of challenges but all have one thing in common. The owner wants to cash out realizing the most amount of money after taxes. I have a saying “It is not what you make as much as what you keep that is important.” As a business broker or Realtor™ your roll is much more complex than just marketing and selling the business. I know we are not accountants or lawyers but in the process of negotiating the terms of the sale we are actually structuring the sale which will determine the tax consequences for the owner. It will also determine future tax consequences for the buyer. You can actually structure the sale so both buyer and seller realize tax benefits and keep a lenders interest charges in the buyers and sellers pockets. In my opinion if the bank and taxman lose and the buyer and seller gain you have negotiated a good deal for both buyer and seller. All done legally of course. All my agreements are subject to both buyers and sellers accountants and lawyers approval. Tax evasion is illegal but tax avoidance is not. Quite often the terms in the agreement define by definition what is taxable and what is not. It is too late to try and shelter tax after the deal is closed as the agreement has been finalized and any taxes are owing.
The first step in selling a business is packaging the business too be sold. A business is sold in one of two ways either by assets or shares. You need to determine if the business qualifies for any capital gains exemptions. For example in Canada there is presently a $750,000 capital gains exemption for individuals selling shares in a Canadian company. If the owner has not incorporated his business it may be wise for the owner to incorporate and sell the company and assets by selling the shares. If the owner has losses he can carry forward with that company for future tax benefits he may want to keep the company and sell the assets. Depending on the dollar value of the business say with a family business the share structure may be able to be restructured to involve family members to increase the capital gains exemption. It may take the owner 1 to 3 years just to organize the business to be sold to minimize the tax liability. This all has to be done in consultation with the accountant and tax lawyer to be sure it is done properly. Once this is done you can then discuss with the owner how the business can be marketed and other ways to structure the sale for his benefit. You have the information and know the structure of the business you are selling. Helping the owner and advising him of the steps he should take to prepare his or her business for sale is one of the most important aspects a competent business broker or Realtor™ can do to insure the customer receives the highest return after taxes when the business is sold.
Most business owners are so busy running their business that little time is spent planning to sell the business. Quite often the sale comes about because of illness or sudden death of the principal and you are called because family members need guidance and advice. You can be sure having the knowledge to guide them in the right direction will assure you the listing when the business is packaged to sell. There is much more to actually marketing and selling the business when that time comes. I will deal with that in my next article.
Yours In Business
How To Sell A Business