Preparing Your Business for Sale

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1 November, 2014 Preparing Your Business for Sale A practical guide to the steps to take in the years ahead of a business sale that will help you maximize the return on your lifetime s work. Prepared by the Business Law Group at Kelly Santini LLP

2 Checklist: Is your business ready for sale? My company records are complete and up-to-date I have signed, up-to-date contracts with all my clients, suppliers and partners All my employee contracts are up-to-date and include the appropriate non-compete and non-disclosure provisions The intellectual property belonging to the business has all been properly registered I have established a set of family business rules that will govern the succession of the business to my heirs The shareholders agreement I have with my partners is up-to-date and covers different business sale scenarios The business has been structured, or restructured, to maximize tax efficiency I have selected a business broker to help me sell the business A have addressed the other intangibles that can impact the sale of my business I have assembled all the document for the sale of the business into one place for easy access and review

3 Getting your business ready for sale A guide to the legal steps you can take ahead of time to help ensure a smooth process and a profitable sale As a business owner, you ve spent years establishing your company. You ve managed it through challenges and built it into the successful operation it is today. Selling can be a tough decision, and if you are considering a sale, now is the time to arm yourself with the facts to ensure it s as smooth, equitable, and profitable as possible. The first thing to know is that selling can be a lengthy process, and it does require significant effort on the part of the seller. In fact, a recently released analysis of 9,000 transactions in the US showed that, on average, it takes 6.8 months to sell a business. Why so long? Not surprisingly, potential buyers want to undertake extensive due diligence to properly assess what exactly it is they re buying. And that s just the sale process itself. In fact, it can take years to get your business ready to put on the market. That s where this guide comes in. It will help you prepare your business for the due diligence it will need to withstand to achieve the sale price your years of work have earned. It will take time, but it s time well spent. If you take the right steps and prepare the necessary documentation, you can speed up the transaction, reduce frustration with the process, leave more time to focus on the continued operations of your business and increase the ultimate sale price. You ll also be ready to take advantage of any unexpected offers that may come your way. To increase your chances of success, try to anticipate the buyer s concerns or needs. In the buyer s eyes, the more organized your company appears, the greater the comfort level. And your ability to provide a buyer with an indexed archive of information on your business will limit the potential for problems during the due diligence period. This guide outlines the things you need to consider from a legal standpoint as you prepare for the future sale of your business. Of course each unique business has nuances and details that will require professional opinions and advice. However, there is much you can do ahead of progressing with a sale to ensure that, when you do decide to move forward, you re thoroughly prepared. In this guide you will find information on: Getting your company records ready...2 Formalizing your external relationships with contracts..3 Updating your employee contracts...4 IP considerations when selling your business...5 Preparing for family business succession...6 Ensuring your shareholders agreement is up to date...7 Understanding the nuances of selling your franchise...8 Restructuring your business for tax efficiency...9 Selecting a business broker...11 A few other things to think about...13 Working with Kelly Santini LLP...14 The business law lawyers at Kelly Santini LLP can assist you with each of the pre-sale actions and the ultimate sale of your business. Preparing Your Business For Sale November,

4 Getting your company records ready If your business is incorporated either federally or provincially, you are required to keep corporate records. The most common form of maintaining the corporate records is the minute book which serves as the record of your business significant activities. Initially, your minute book includes documents such as the articles of incorporation and bylaws, shareholders agreement, if any, subscription to shares and organizing resolutions. Over the years, the minute book will include the minutes (or resolutions) of directors and shareholders meetings, the appointment of auditors, changes of directors, shareholders, by-laws, articles, and dividends paid to name a few. It may be that you let the minutes book slide for a while when you were busy running and growing a business. But remember, it is something that will need to be dealt with at some point. Interested buyers of your business are likely to request a copy of the minute book as part of their due diligence. If your minute book is not up-to-date with all your corporate records, you are not alone. Thankfully there are steps you can take to bring the minute book up to date. It takes time, so act well before you wish to sell your business. Start by ensuring the annual resolutions are up to date by either preparing the resolution for each year or using an omnibus resolution for the outstanding years, update the register of the directors, officers and shareholders and ensure all filings required by the government are completed. Speak to your accountant as he or she will be able to advise you and your lawyer which past and upcoming transactions should be documented in the minute book. Your accountant and lawyer work together as a team to help keep the record-keeping side of your business as painless as possible for you. The more thorough your minute book is, the more transparent and well-run your business will appear to a potential buyer. Once your minute book is up to date, it will be easy for you to continue to maintain full and accurate corporate records until the time when you are ready to put the business up for sale. Not having to drop the price when selling your business or scrambling to update the records at the last minute due to inaccurate records will make the process well worth the effort in the long run. The business lawyers at Kelly Santini LLP can guide you on all the requirements. 2 Preparing Your Business For Sale November, 2014

5 Formalizing your external relationships with contracts Over the years, you ve developed good relationships with your suppliers, licensees, landlords, and of course, customers. In addition to your financial records, a potential buyer will want to examine the state of your contractual relationships with these key third parties. The first fundamental question is are the contracts up to date? It s not uncommon for a business relationship to carry on even when the contract between the parties has lapsed. This is often the case when there is a strong working relationship and level of trust between the parties, which for obvious reasons will not necessarily apply when a new owner takes over. Lapsed contracts will be an instant red flag to a potential purchaser who may fear that a change in ownership will mean a change in terms. The same advice applies to key customers. If any of your contracts with key accounts have expired, you must re-sign them before hanging out the for sale sign. The second important consideration is the assignability of your contracts. It is very common for joint-venture agreements, licenses, leases and other material contracts with customers and suppliers to contain clauses preventing assignment to a third party without the express written consent of the other party to the contract. This may be true even in a share transaction, as a change in control in the Seller will be deemed to be an assignment for the purposes of the contract in question. You should identify contracts with restrictions like these and take steps early on to ensure that you won t have any hesitant third parties. A reluctant supplier or customer could jeopardize the sale from being completed in a timely manner, or worse, stop it entirely because of some unwarranted demand in exchange for their consent. If a contract has expired, a business owner in the midst of negotiations to sell may be required to back peddle in order to get a new contract signed and agreed upon in a timely manner. But what happens if the other side is not in a hurry or uses the urgency of the business owner as a negotiating tool? Playing catch-up is never a comfortable feeling for a business owner who is trying to sell. It is a prudent business practice to maintain and regularly review a detailed list of all material business contracts and their terms to ensure they will not impede your ability to successfully conclude your exit strategy on your terms. Preparing Your Business For Sale November,

6 Updating your employee contracts As a business owner, your employees have been a key part of building your company. Some have offered leadership. Some have been the source of game changing ideas. And some just help you get the job done. If you re considering selling, you re probably concerned about what will happen to your team once the deal is done. The fact is you can include a requirement or request that a buyer offer employment to your staff as part of your negotiation. And many buyers will need the knowledge, experience and reputation of some, if not all, of your employees to effectively run the business after the closing date. A potential buyer of a business will want to examine the employment contracts for the key personnel within your organization. This is especially true for a knowledge-based business where buyers are acquiring far more than the tangible assets on your balance sheet. Employment agreements, non-competition, non-solicitation and/or confidentiality, non-disclosure agreements and other such documents intended to protect the proprietary rights of your business are important to a potential buyer. They should want as much assurance as possible that the know-how, knowledge and intellectual property of the business can t simply walk out the door or, worse, be lured away by a competitor the moment the purchaser takes over. Having comprehensive and up-to-date employment contracts is an essential part of the documentation you must prepare and make available to a potential buyer. As you prepare and/or review these documents, particularly non-competition and non-solicitation clauses, you must remember that employees cannot be denied a right to earn a living. There is a delicate balance. In Ontario today, it is well established that restrictions exceeding what is reasonable, in the circumstances, to protect proprietary rights are nonenforceable. Generally, non-solicitation clauses are preferred over non-competition clauses where the nonsolicitation clause would adequately protect. A Court will refuse to enforce a restraint in trade provision in an employment contract if it concludes that the activity restrained is overly broad and unreasonable or the temporal or geographical restrictions are unreasonable. So yes, your employees are real assets to your business. But to a buyer, they can represent potential liability too. For example, your employees are protected by individual employment contracts, common law, the Employment Standards Act, and the Human Rights Code. These rights may not be affected by the sale of the business. An employee who has worked for the business for 12 years at the time of sale may be entitled to a significant severance package if the new owner decides to dismiss him or her two years after the sale. So you can see why a company or individual that is considering purchasing your business will look very carefully at your employees and your employment contracts. A buyer would assume these contracts and the associated claims for reasonable notice for termination, unpaid overtime, and disability benefits. As a vendor, your business will be more attractive and valuable to a buyer if your employee contracts are properly drafted and enforceable. Working with the employment lawyers at Kelly Santini LLP before you begin the sales process will help eliminate many of the potential employment law issues that may arise during or as the result of a sale. 4 Preparing Your Business For Sale November, 2014

7 IP considerations when selling your business As a business owner looking to prepare your business for an eventual sale, and maximize its valuation, there are a number of relevant intellectual property law issues to consider before and during the sale/purchase process. Here are three of the most important. Ownership There can be substantial value in your company s intellectual property, but only if your company actually owns, or has valid licenses to use, all intellectual property that is used in its business. Never assume you own your IP, properly confirm it by: (i) reviewing all intellectual property agreements (such as assignments, license agreements and prior sale and purchase documents) with third parties that show you have been granted ownership or at a minimum the right to the third party intellectual property; and (ii) by confirming that all of your employees and contractors (who have or will create some or all of the relevant intellectual property) have proper written employment agreements and/or agreements assigning ownership of all intellectual property and technology they develop. Without these agreements, ownership of inventions (whether or not patentable) may initially belong to the inventor and not the company. Intellectual property agreements Review your intellectual property agreements carefully. For in-licensing agreements (where your company receives a license to use third party intellectual property), a buyer will want to confirm that the scope of the license is broad enough to cover all current and anticipated future uses of the licensed intellectual property (including the right to make and own modifications and derivative works, if applicable). Also, consider and assess grants of exclusive rights, including an exclusive license to use intellectual property for a particular field of use or the appointment of an exclusive distributor or reseller in a specific territory or market. Potential buyers may already have their own established distribution networks and the exclusive rights you would grant as part of the sale may cause channel or development issues and/or de-value the intellectual property assets in the eyes of a buyer. And, importantly, check your in-licenses to make sure you have the right to assign the rights and obligations to any buyer, so the agreements can continue after the sale of the business is completed. Review your out-licensing agreements (where a license is granted to a third party customer or partner to use your company s intellectual property), to make sure the scope of the license is appropriate and that only those rights needed by the licensee are granted and not more. If you have indemnification provisions, check them carefully. Buyers will be very interested to make sure that any indemnity rights granted to third parties are limited by appropriate limitation of liability provisions (such as appropriate damage caps). Registered intellectual property Examine all materials related to your registered intellectual property, including patents and applications for patent, trademarks and trademark applications, copyright (registered and unregistered), and any Internet domain names. A prospective purchaser will want to confirm that your company is properly registered as the owner of record for all such items and that all required filings are current and up to date to maintain the registrations in good standing. For a seller looking to obtain or maintain the highest valuation, the above-noted intellectual property issues must be carefully considered. Preparing Your Business For Sale November,

8 Preparing for family business succession The fact is family businesses get more complex over time. Each generation offers the potential for additional family members to be involved. What started as a simple partnership becomes an enterprise with several owners, decision makers, and managers. So, beyond the technical issues unique to family business succession tax minimization, family trusts, and wealth management planning the family part makes the process even more unique. Integrating family members into your succession plans will help you manage expectations, instil a sense of comfort and equity amongst your successors, settle potential conflicts before they become difficult to manage, and make informed decisions. Let s start with communication. If you don t already, establish regular Family Business meetings with the family members who are directly involved with the dayto-day operation and management of your company. Use these meetings to build your succession plans. You can deal with the issues around both management and ownership succession. Some examples include your timeline, grooming the successors, and how succession will be communicated to employees and externally. You ll want to outline your changing role and how management responsibility and ownership will change hands. You should also review compensation, shareholder agreements, and financial details. For example, will ownership transfer gradually or all at once? How will the shares be acquired? As part of the discussions, you should create and document a set of business rules that everyone agrees upon. These rules can cover conflict resolution, criteria for hiring/including family members in the business, and performance reviews, to name a few. Once ownership transfers hands, the next generation has something to refer to and modify as and when needed. Your aim is to create the following plans, so you are ready to engage professional advice to solidify the deal: A shareholders agreement A set of family business rules A business plan prepared by the successors A grooming plan for each of your successors In addition to your Family Business meetings, you might also consider establishing regular Family Council meetings. These would involve a broader group: family members, who might be impacted by the business, but are not actually involved in day-to-day operations. These will help you keep family members informed and engaged. And, as they are not directly involved, the family council might be valuable to provide feedback and advice. While the majority of family business owners would like to see their business transferred to the next generation, it is estimated that 70% will not survive into the second generation and 90% will not make it to the third generation. Family Firm Institute, ffi.org 6 Preparing Your Business For Sale November, 2014

9 Ensuring your shareholders agreement is up to date Part of the role of a shareholders agreement is to protect owners in the event that some or all of you decide to exit the business. So now is the perfect time to review the agreement you have in place. You may even consider revising the agreement if all shareholders wish to make amendments ahead of a potential sale. This can help avoid conflict and delays once the sale process begins. Your shareholders agreement is likely to contain at least one of these following clauses. Shotgun Clause This clause allows a shareholder to buy out their partner(s). While there are many different variations of shotgun clauses, they typically involve one partner offering to buy out the other partner(s) at a specified price. The other partner(s) must either accept the offer and sell their shares or buy out the partner who made the initial offer at the same price. Right of First Refusal This comes into play when one shareholder receives an offer from a third party to purchase their shares. Before accepting the offer, the shareholder who receives the offer must first offer to sell their shares to the other business owners on the exact same terms. If the remaining shareholders do not opt to buy-out their partner then the sale to the third party must be concluded on the same terms offered to the existing shareholders. Tag-Along Right This is often used in conjunction with the right of first refusal. If the shareholders decide not to buy-out the partner who has received an offer for their shares, the tag-along clause requires the third party to buy their shares as well. This is often used in scenarios where the remaining shareholders do not wish to go into business with the third party and/or represent a minority stake in the company. Drag-along Clause This clause is used to compel a shareholder to sell their portion of the business to a third party if a majority of the other shareholders are in favour of the sale. It is up to the shareholders to set the voting threshold for selling the business when they are drafting the shareholders agreement. For example, the shareholders could elect that if 2 out 3 owners agree to sell the business then the drag-along clause can be applied. Alternatively, the formula could require a certain percentage of voting shares. Your shareholders agreement is in place to protect you and the other shareholders should one or all of you decide to leave the business. Potential buyers will want to understand the potential scenarios that might play out as well; so ensuring that you have a current shareholders agreement is an essential part of your preparation to sell. Preparing Your Business For Sale November,

10 Understanding the nuances of selling your franchise The basic principles of selling a business also apply to franchisees seeking to sell their franchise. The exception is that a franchise sale has the added layer of assigning the franchise agreement itself (or obtaining the consent to the change of control of a franchisee corporation) and all the supporting documents that are required for this to take place. The extra steps can add to the time it takes to find a suitable buyer, finalize a sale agreement and complete the transaction. If you are interested in selling your franchise, one of the first things to do is review your franchise agreement to determine the length of term remaining. If the contract is close to expiring you may wish to renew the agreement before putting your franchise up for sale in order to increase its appeal to a buyer. However, if a franchisee believes that a prospective buyer may wish to re-brand the business then the converse is also true. The closer to the end of the term you can sell (without renewing) may make the business opportunity more attractive to a buyer. You should also review the agreement to understand the requirements for a transfer of ownership to a new franchisee. Almost all franchisors will want to approve the new franchisee. This usually involves an application process, interviews, personality profiles and whatever other procedures your franchisor normally includes to approve a franchisee. The franchisor will also have to comply with their disclosure obligations as outlined in the Arthur Wishart Franchise Disclosure Act, the legislation regulating franchising in Ontario. Lastly, there is usually a transfer fee that is charged on the sale of a franchise that is payable to the franchisor, and this fee is typically calculated as a percentage of the initial franchise fee. If you have a lease, you should review this as well. Generally, the lease expiry date should marry up to the franchise expiration. Otherwise, you, or the new owner will be in a poor bargaining position for the renewal of either agreement. As with any sale, your legal advisor can take you through the entire sale process beginning with structuring your business to optimize tax treatment, preparing the letter of intent, organizing due diligence, assignment of the lease, and working with the franchisor with respect to the transfer of the franchise agreement. 8 Preparing Your Business For Sale November, 2014

11 Restructuring your business for tax efficiency Your company s corporate structure may be the same as the day you opened your doors or it may have evolved over time. Either way, while your current structure may have made sense in the past, it may not be ideal for the purpose of selling your business. The following is a brief look at some options you can consider to help minimize your tax bill when you sell. Keep in mind that corporate restructuring takes time so planning ahead is essential. You can choose to structure the sale of your business as an Asset Sale or a Share Sale. Tax considerations are certainly not the only issue at play in deciding which route to take, but it is a significant factor as both offer options for minimizing tax. Generally, the seller would prefer to sell shares, while the purchaser would prefer to buy assets. For the seller, a share sale will likely cost less in tax. For the purchaser, an asset transaction will allow for a higher cost base on which to claim asset depreciation. The purchaser can also recognize and depreciate any goodwill associated with the business in the case of an asset sale. Both of these are tax-advantageous to a buyer. However, an asset sale may be subject to sales tax, HST and land transfer tax, which would be paid by the purchaser. An asset purchase can also be more complex to implement, because each asset must be transferred and registered in the name of the purchaser. Minimizing Tax on a Share Sale There are several methods that a seller can use to defer or minimize taxes in the case of a share sale. For example: (1) There is an enhanced lifetime capital gains exemption of $800,000 that can come into play in the sale of shares of a qualified small business corporation. It s only available to people who are resident in Canada throughout the year, and there are a number of tests to determine if you qualify for the enhanced capital gains exemption. (2) You might also consider making family members shareholders in your corporation. They may then be able to use their own lifetime capital gains exemption when their shares in the company are sold. (3) Another method is to remove value from your business prior to the sale. Although you would still pay tax on this removal, it may be less than the cost of a capital gain. Examples of this strategy are shareholder loans to the business, which can be repaid without tax; distributing the balance of the Capital Dividend Account to shareholders; and Safe Income, which can be extracted and passed onto another cooperate entity. (4) A retiring allowance is defined as an amount received at retirement in recognition of long-term service or as compensation for loss of employment. If your business is incorporated, you can pay yourself a retiring allowance. The advantage is that you can transfer some of it to an RRSP without affecting your deduction limit and without being taxed immediately. If your business is not incorporated, you can still pay a retiring allowance to your employees, including family members. (5) A capital gains rollover can be used to invest the proceeds of the sale of your shares in your business into another active Canadian corporation. This is a tax-free option available under the Canadian income tax rules. (6) Payment of the purchase price can be deferred by including an earn-out provision in situations where a buyer and seller have different opinions on the valuation of the company. The earn-out helps bridge this gap, as a portion of the purchase price is based on the company s future results and paid a designated period of time after the sale closes. Preparing Your Business For Sale November,

12 Restructuring your business for tax efficiency continued For tax purposes, an earn-out payment can be characterized as payment of deferred contingent purchase price, payment of ordinary compensation for your continued services (if you have agreed to an earn-out, you will retain some control and responsibility in the company, so you can affect the results on which the earn-out is based), or part compensation and part purchase price. Income treated as compensation will be taxed as ordinary income, while income treated as deferred contingent purchase price will be taxed at the lower capital gains rate. A portion of the earnout payment will likely be deemed compensation if you provide continuing services or enter into an employment agreement or a non-compete agreement with the buyer. Minimizing tax on an Asset Sale There are fewer methods to reduce tax in an asset sale, but they are certainly worth noting. For example: (2) Defer payment of the purchase price You can choose the same route as outlined above as part of an asset sale. Kelly Santini LLP will work with you and your tax advisors to find out whether your corporate structure would be tax effective in the event of a sale. If a deal becomes imminent, your window to restructure may have closed as there are complex rules regarding holding periods. Your corporate planning must be done in anticipation of a future sale, rather than as a reaction to an offer or change in your industry. The benefits of reviewing your corporate structure can be reaped immediately, for example, keeping your company s tax bill at the lowest possible rate, limiting legal liability, and distributing excess cash in a tax efficient manner (for example, by taking advantage of income splitting opportunities). (1) Allocation of purchase price The value of different assets is a key factor in determining tax costs. The purchaser of your business will want to see different assets valued in the most advantageous way possible. Land for example, does not depreciate over time, while equipment and buildings do. The purchaser would wish to minimize the cost allocated to the land, and maximize that for equipment. This may be very different from what will benefit you, the seller, so it is a key part of the sale negotiation. 10 Preparing Your Business For Sale November, 2014

13 Selecting a business broker As you prepare your business for a sale, you may want to consider engaging an intermediary to help you market and sell your company. Why choose an intermediary? Choosing to engage an intermediary to market and sell your company is purely a business decision. Sellers tend to go this route because they simply don t have the right level of expertise in-house. Some owners, particularly those with smaller businesses, may know already interested buyers and feel comfortable determining the value of the business and conducting negotiations. For others, an intermediary will be the key to finding likely buyers, maximizing the number of potential buyers, and determining the value of the business. Intermediaries can have access to the most current information in the M&A marketplace and have a depth of experience to draw upon in marketing your business and advising on valuation. This experience can also be helpful in negotiations, and an intermediary s involvement also creates a buffer between the seller s principal decision makers and potential buyers. The exact services that an intermediary provides will differ from transaction to transaction and will depend on the type of intermediary engaged by the seller. Most, if not all, of an intermediary s compensation is earned only if the business is sold. So intermediaries have an economic incentive to minimize problems and find solutions to those that threaten the deal. Types of intermediaries There are several types of intermediary that you can engage to help with the sale of your business. Here, we focus on the two most common: business brokers and investment banks. A business broker is an agent that represents one side in the sale. A seller will usually list the business for sale with the business broker. The broker will field inquiries from potential buyers and ultimately will put one or more potential buyers in contact with the seller. Business brokers are common on smaller deals most often by local sellers selling to local buyers. An investment bank is a full service financial advisor that can provide advice regarding the valuation of the business (including rendering a fairness opinion), conduct the marketing process, advise on the appropriate structure for the sale, participate in the negotiation of financial terms and (if necessary) assist to raise funds to finance the transaction. An investment bank, like a broker, works for one side of the deal and not both. An investment bank is a more appropriate intermediary for larger businesses where buyers may include large publicly traded companies or investment funds. As a business owner, you may not have knowledge of or access to these potential buyers without the support of the banker. Preparing Your Business For Sale November,

14 Selecting a business broker continued Choosing your intermediary Whether you choose a business broker or an investment bank, it s important to find the intermediary that will best suit your needs. Keep in mind that you ll want someone who is not only right for your business, but also someone you trust and mesh with personally. Your legal counsel we can be a valuable resource to you in this regard as they ve worked with various intermediaries and have seen firsthand their strengths and weaknesses. Other advisors, such as directors and accountants may also provide input. Consider the following as you compile your list of potential candidates: experience dealing with the potential size of your sale; the services you ll require, including participation in negotiations and advice on valuation issues and negotiating tactics; familiarity with you and your business; familiarity with the industry and competitive dynamics; transaction experience; cost and fee structure; positive references; and a tradition of representing companies and/or deals of same size and profile. Terms of the Engagement Once you select your intermediary, you will outline the terms and conditions of the engagement in a written agreement. This is usually in the form of an engagement letter. The engagement letter will define the services that the intermediary will perform and the scope of the engagement, describe the fees it will receive and who will be responsible for payment, and address the consequences of termination of the engagement. The intermediary typically prepares a first draft of the engagement letter, but the final terms of these agreements can be, and usually are, negotiated. Are you ready? Before you enter into any sort of discussion with potential intermediaries, ask yourself one last time: am I ready to sell my business? As with any business deal, a positive outcome requires that both sides be committed to success. An intermediary who feels it is working with a wavering seller will quickly lose interest and move on to other prospects. What s more, it will be difficult to restart a sales process that has been abandoned. Once you settle on a list of potential candidates, make an initial contact to gauge the intermediary s interest in working with you. Schedule an interview with your short list of interested candidates, and be sure to obtain a confidentiality agreement before you meet. 12 Preparing Your Business For Sale November, 2014

15 A few other things to think about The intangibles While getting your business organized from the legal and financial perspectives is clearly important, don t forget the less formal things that might also affect a sale. It s likely, for example, that potential buyers will visit your premises. Take a realistic look around and consider how it will be perceived to a potential buyer. Is it clean and well organized? Is the equipment up-todate and running well? Is the space pleasant for staff and customers? How is your staff morale? If a potential buyer were to strike up a conversation with one of your employees, what are they likely to hear? Next, move beyond your physical space, and consider your company reputation. Have you had any bad press or social media feedback in recent years? It s so easy to find these things online, so do a search yourself and be prepared to answer questions on anything negative that results. And finally, prepare yourself for the inevitable personal questions that will arise during a sales negotiation. The most important to a buyer might be Why are you selling? Do you have a business plan for the next three years? A prospective buyer will want to see at least three years worth of financial information, so make sure your books are in order for review. Of course it s not the past that matters most to a buyer, but the potential for future gains. Most business owners have at least a rough plan in mind for taking the company forward. If you haven t already, you should consider preparing a formalized business plan that projects the next three years revenue and outlines potential growth and opportunities. If potential buyers are unfamiliar with your market or industry, you can build confidence with a market overview, a frank SWOT analysis, and a summary of the competitive arena. What do you do with all the information you ve prepared? Once you ve completed your pre-sale planning, you can assemble all this information in one (or more) neatly organized binder so that prospective buyers can review it easily. This not only gives them everything they need, it also allows you to continue with the everyday operations of your business instead of having to drop everything to search for information at each prospective buyer s request. It will make the sales process as smooth as possible and give the potential buyer the confidence that they are buying a transparent and professionally run business. Preparing Your Business For Sale November,

16 Working with Kelly Santini LLP Our team has years of experience helping business owners like you. We understand that the sale of your business won t always be about dollars and cents. You ll also be concerned about the future of your employees, the service that your customers can expect in the future, and the reputation of the business that you ve built. You may also continue to work at your company in some capacity, at least in the short term. You ll want to be sure that you ll be able to work effectively with the potential new owner, and feel confident in their leadership and plans for taking your company forward. When you re ready to start the sale process, you can work with us and your other advisors to: determine what your business is worth; identify your market and what kind of buyer will be most attracted to your business; determine your role after transfer of ownership investigate the possibility of earn outs and restrictive covenants; structure the sale and investigate the multitude of tax implications; and prepare warranties and the disclosure letter. A successful business is the result of years of hard work and the sale of it is the biggest and most important step you will take in your career. Each case has its nuances and details that require professional opinions and advice. We ll help you take full advantage of this opportunity and its rewards whether it s a happy retirement or a new venture. Let s talk. 14 Preparing Your Business For Sale November, 2014

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19 This publication provides general information about Kelly Santini LLP, our lawyers and on legal topics and related matters. No content should be relied upon as legal advice. If you require legal advice, you should retain qualified legal professionals to advise you in the context of your particular circumstances. If you would like to retain Kelly Santini LLP to give you legal advice, please telephone, or write to any of our lawyers, who will be pleased to discuss whether or not our firm can assist you. Until we specifically agree to act for you on a matter, you should not provide us with any unsolicited confidential information or material. Unsolicited information and material will not be treated as confidential and will not be protected by any lawyer-client privilege. Preparing Your Business For Sale November,

20 Business Law Group Michael Abrams Patrick Aubry Donald Burke David Charles Mike D Aloisio Robert Ford John Kebe Lawrence Kelly Matt Landry Michael Leaver Timothy McCunn André Munro Diem Nguyen Kelly Sample Andrew Scott Lawrence Silber Employment Law Group Sean Bawden Shaun Jaberolansar JP Zubec Commercial Litigation Rick Brooks Mark Gallagher Shawn O Connor Pat Santini True Professionals. Good People. Downtown 160 rue Elgin Street, bureau/suite 2401 Ottawa, ON K2P 2P7 T F West End 2301 rue Carling Avenue, bureau/suite 301 Ottawa, ON K2B 7G3 T F E inquiries@kellysantini.com