Preparing Your Business for Sale

Transcription

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
www.kellysantini.com
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
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
Understanding the nuances of selling your franchise. . . . . 8
Formalizing your external relationships with contracts. . . 3
Restructuring your business for tax efficiency. . . . . . . . . . . . . 9
Updating your employee contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selecting a business broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IP considerations when selling your business. . . . . . . . . . . . . 5
A few other things to think about. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Preparing for family business succession. . . . . . . . . . . . . . . . . . 6
Working with Kelly Santini LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Ensuring your shareholders’ agreement is up to date. . . . . 7
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, 2014
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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
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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.
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.
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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.
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.
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.
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.
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
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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.
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.
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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.
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Your aim is to create the following plans, so you are
ready to engage professional advice to solidify the deal:
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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
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.
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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.
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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.
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.
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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:
(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.
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(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).
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?
Types of intermediaries
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.
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.
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.
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.
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Selecting a business broker continued
Choosing your intermediary
Terms of the Engagement
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.
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.
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.
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
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.
A few other things to think about
The intangibles
Do you have a business plan for the next three years?
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?
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.
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?’
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.
13
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.
14
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.
Notes
15
Notes
16
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, email 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.
17
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 613-238-6321
F 613-233-4553
West End 2301 rue Carling Avenue, bureau/suite 301 Ottawa, ON K2B 7G3
T 613-829-7171 F 613-829-0244
E [email protected] www.kellysantini.com

Preparing Your Business for Sale

Transcription

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