Counting on a business to fund your retirement goals without creating a researched and comprehensive strategy is risky, often times resulting in an unfavorable payout. The reality is that if a business owner wants to exit with the most money in his or her pocket, it takes about five years to execute the optimal plan.
Realistically, business owners can put aside one year to create and implement a tax planning strategy to optimize the after-tax proceeds from the eventual sale of their business.
It takes two more years for the tax plan to be in place before it is recognized by Canada Revenue as a bonafide plan, and it then takes one year further to execute the marketing, sale, due diligence, and closing of the sale of a business. Once sold, the former business owner can count on one more year to transition new ownership into the business before the eventual exit is complete.
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In parallel to a detailed and accurate plan, owners must learn how to improve their business in order to maximize value and effectively move through the selling process. In the eyes of a buyer, value is seen through concrete factors such as steady growth rates, high margins, a broad customer base, barriers to entry, and well-defined systems and processes. Additionally, a quality management team is one of the most comforting elements to a business buyer, which is why locking a valuable team in with stay bonuses, non-intervention and non-compete agreements, and documentation of any prior verbal promises or commitments can be well worth the investment.
When the right buyer for a business is selected, it's important to stay strategic in capitalizing on this once-in-a-lifetime opportunity to significantly increase the return from the sale. Independent studies have shown that sellers acting on their own accepted up to 30 per cent less than those sellers employing the help of professionals.
One of the most common mistakes made by solo sellers is the attempt to time the sale of a business. Trying to time the market for selling a business is a fool's game with a 50:50 chance of hitting the mark. Additionally, sellers have huge financial and emotional interests in the transaction and selling a company is a high-stakes game that can put stress on any facet of a business; facts emerge, situations arise, and positions change, all of which threaten the basis for making a deal.
When a seller acts without help, there's a greater than 50 per cent chance the deal won't go through at all, and the prospect of a deal collapsing is a burden most sellers cannot withstand on a repeated basis and so usually results in submission to the buyer's demands.
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In order to do things right, specialists need to be brought in to help with everything from executing an optimal tax strategy to crossing the "T"'s and dotting the "I"'s of all documentation involved in the transaction. These processes are special crafts, ones that require a discerning eye and experienced mind for the most ideal result.
In the end, throughout the demanding and lengthy process of selling a business, two of the most important aspects of achieving a successful sale are finding the buyer with the best cultural fit and putting sustained emphasis on the why an owner is selling their business for retirement. If a seller can focus on what is motivating the sale – their retirement, their family, their legacy – this is what will get a seller through to the finish line.
Brent Cunningham is the co-owner of Sequoia Mergers & Acquisitions Corp.
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