During tough economic times, it may be difficult to envision a possible sale of your business. However, it is likely an appropriate time to start positioning your business so that it will be attractive to a wider range of possible purchasers when economic conditions improve.
Some of the matters to consider include the following:
- Segregating, in a separate company, non core business and investment assets such as, corporately held investment portfolios; each saleable business unit; life insurance; and real estate, including real estate required in the operations of the business.
- Paying owner-managers a fair market value salary and bonuses. Alternatively, separately disclose remuneration paid to owner managers. This will simplify a purchaser’s efforts to determine what the normalized profits of the business are and make the valuation process more straightforward.
- Arranging to repay any shareholder loans owing to the company. Purchasers seem to consider a repayment or purchase of a shareholder loan as part of the proceeds paid for the company, possibly lowering the valuation for the shares.
- Removing excess working capital from the company. Also, if the company is under leveraged, consider increasing bank debt and removing the excess capital. This should enhance the shareholders’ value when combined with the working capital removed from the business.
- Establishing employment agreements with key employees.
- Having annual audited financial statements or, at a minimum, a review engagement report.
- Having an established management team in place that can operate the business in the absence of the owners. This will typically increase the value of the business.
- Having an appropriate management information system in place to ensure that the data generated from the system is useful and reliable.
- Adding external members to your Board of Directors. This would provide additional input into the business operations and will subject management to further discipline in reporting.
- Making sure the minute book for the company is complete and accurate.
- Making sure all filings with the Canada Revenue Agency, such as GST returns and corporate income tax returns, remain current.
- Having in place appropriate errors and omission’s insurance and liability coverage.
- Not having corporate owned “executive” vehicles and golf or other memberships. Instead, pay an appropriate automobile allowance for business use and reimburse costs associated with business memberships. Costs to maintain these benefits may have a negative impact on share valuation.
- Planning a reorganization, well in advance of any possible sale, to multiply the $750,000 lifetime capital gains exemption among family members if a share sale is a possibility. A reorganization when the value of the company is low may be beneficial.
Making these adjustments could make your business more valuable and will certainly make the business more attractive to a wider field of potential investors.
Conclusion
If you have any questions regarding the positioning of your business for sale and or any income tax or business issues, do not hesitate in calling Joe Truscott at 905-528-0234 or email Joe at [email protected].
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