Succession Fireside Chat: Is there a specific time when it’s easier to sell the business?

You may be considering selling your family business — and wondering how you can identify the right time for a sale in an uncertain marketplace. What is the right time and what are the right reasons to sell your business?

In the third episode of our Succession Fireside Chat series, MNP’s Eben Luow and Craig Maloney discuss current trends in the market, provide guidance on the optimal timing and reasons to sell your business, and share insights on how to approach readiness for a sale.

How to ensure your business is ready for a sale

Selling your business is a complex process that involves a variety of factors. These best practices can help you overcome challenges and ensure your sale is successful:

Consider the prospective purchaser

Keep the perspective of a potential buyer in mind as you prepare your company for sale. For example, many business owners reduce their spending to increase the amount of cash in the company. However, it may be beneficial to continue spending in areas such as human capital — a potential buyer will consider the talent in your business and want to ensure it continues to perform after the purchase.

Additionally, it is important to consider the key attributes that set your business apart and identify areas where you can add value for a potential buyer. Securing key customer contracts or management contracts can increase buyer confidence and enhance the value of your business. Additionally, including your management team in strategic business planning and decisions can increase value by indicating your business will continue to perform after the sale.

If you are considering offering a buyout opportunity to your employees or management team, approach the sale from their perspective. You may want to set a lower transaction price than you would for a third-party buyer to ensure they are able to buy into ownership.

However, if your business is highly valuable, your employees or management team may need to explore options such as vendor financing or partnering with a private equity group to cover the cost. It is also important to approach the subject of a management buyout with your shareholders to ensure they are all on board before you proceed.

Invest in proper tax planning

Proper tax planning can help bring the most value to your business and its shareholders. Tax planning should begin two years in advance of when you intend to sell your business to help you avoid obstacles and capitalize on opportunities.

For example, there may be assets held in your company that you do not want to sell or that a prospective buyer may not wish to include in the purchase. Plan at least two years ahead of the sale of your business to ensure you transfer out those assets well in advance. This will ensure your business is a qualifying share business — enabling your shareholders to sell their shares and access the capital gains exemption.

Additionally, consider setting up a family trust to support estate planning and investigate tax planning opportunities such as the ability to multiply the lifetime capital gains exemption for small businesses.

Take the next steps

Every business is different — and there’s no one-size-fits-all solution to identify the best time to sell your company. However, factors such as key family milestones, business performance, and market conditions can help indicate when it might be the right time to consider a sale. Additionally, investing in proper tax planning and considering the perspective of a potential buyer can help speed up the process when you put your business on the market.