When you are planning to sell your company
- ensure that it is in a saleable condition
- find out whether you should sell your business in a share deal or in an asset deal
- set a price for your company
- check whether your family members or other close associates would be interested in buying the company, use sales ads and consult professionals
- prepare thoroughly for the sales negotiations.
Use expert assistance in the process.
First analyse the strengths of your company and enhance them. Remove everything from your company that is associated with you personally and make it into a neutral sales object. Remember that putting your company in a saleable condition may take years.
Your company is in a saleable condition when its business operations are no longer dependent on you. The company should also be profitable, its products attractive and the customer relationships smooth-working.
Find out whether you should sell your business in a share deal or in an asset deal. Check the advantages, disadvantages, costs and taxes connected with these two options. If you are a private entrepreneur and planning to sell your business, an asset deal is the only option.
Collect all documents of your company from the past three years for the buyer. A collection of documents providing the latest facts about your business generates trust and speeds up the acquisition decision-making process. Conclude a confidentiality agreement before disclosing the information to the buyer.
You can seek help in the sales process from your regional business development company, company brokers, legal experts or your accounting office.
You can only sell your business in a share deal if it is a limited liability company, a limited partnership or a general partnership. If you are selling your company in a share deal, you can sell the whole business or part of it.
In a share deal, the buyer acquires the shares of your company as well as the rights and obligations associated with them. In most cases, the machinery, equipment, premises, customers, personnel and the name of your company are transferred to the buyer. The buyer also acquires the financial and legal liabilities of your company, as well as its risks. The company continues its operations as before under a new ownership.
A share deal is a transaction involving the shares of your company that are owned by you personally. In other words, your company does not sell shares and the sale does not have any effect on the company’s financial results, taxation or other business operations.
When selling the shares, you only pay the capital gains taxes that you must pay personally. In a generational transfer, you may be granted relief for the capital gains taxes. In fact, in terms of taxation, a share deal is often more advantageous to the seller than an asset deal. Moreover, in a share deal, you do not need to pay any value added tax.
If you are selling your company in an asset deal, the buyer gets its business operations and the assets associated with it but none of shares. An asset deal may include the machinery, equipment, inventories, customers, premises, personnel and the name of your company.
The buyer often establishes a new company for the business operations. The financial and legal liabilities of your company or its risks are not transferred to the buyer.
In an asset deal, your company is the seller and it must also pay the capital gains taxes.
If you collect the capital gains from your company, you must usually pay the capital gains tax personally. In other words, in an asset deal you may have to pay capital gains taxes twice. Paying value added tax on an asset deal is on a case-by-case basis.
After you have sold your business operations, you can close down your old company, in which case you can transfer its assets to you own use. Note that the closure may also lead to tax consequences to you personally and your company.
Valuating a company is always on a case-by-case basis. It depends on such matters as the past performance of the company, its growth prospects, the value of its assets, its debts and the way in which you have contributed to its success. Use outside assistance (such as company brokers and legal experts) when valuating your company.
Use the computed value of your company as a basis when setting a price for it. The value of a small company is usually determined on the basis of its productive value, asset value and operating margin.
Goodwill also impacts the sales price. Goodwill consists of the intangible assets that are difficult to valuate. It includes such matters as your company brand, skills of your employees, patents, customer relationships and a good reputation. There are no formulas for calculating the goodwill, which means that it is difficult to estimate.
The sales price of a company is always a compromise. The price is usually right when you receive an adequate compensation for your company, and the buyer makes a profitable investment and is able to repay its debts within two to five years with its business income.
Finding a buyer for your company can be difficult and take time.
You should start the process from your employees, customers, competitors and other stakeholders, as well as your family members. Find out who might be interested in your company and why. For example, a competitor may want to buy your business so that it can become the market leader. An employee of your company might be interested in buying the enterprise to start a business of their own.
Prepare a sales ad and publish it in trade journals and in online channels. You may have to present your company to as many as twenty potential buyers of whom most will lose their interest before the negotiating stage. Prepare a comprehensive presentation package of your company for possible buyers.
When seeking a buyer, you should use company brokers, business development companies in your region and ELY Centres. Their registers and networks may help you to find the right buyer for your company.
You should plan carefully your strategy for the sales negotiations. You should divide the negotiations into smaller parts in which you discuss one issue at a time.
Remember to prepare thoroughly for each negotiating session. The buyer may present a broad range of different views and proposals. Take notes during each discussion with the buyer. Keep all correspondence connected with the sales process.
Conclude a confidentiality agreement at the earliest possible stage. It might be a good idea to conclude a letter of intent when you feel that the negotiations have got off to a good start. In the letter of intent, it may for example be stated that neither of the parties will start negotiations with anybody else during a specific period.
If the negotiations are making good progress, you might decide to conclude a preliminary agreement. It should be seriously considered, especially if you have already agreed on the sale but have not yet specified all the details. You and the buyer should only conclude the final sales agreement when you agree on all issues.
Ask professionals, such as legal experts, to check and finalise the wording of the agreements.