Top 5 considerations when selling your business

With the economic outlook in Canada positive, many business owners wonder if this is the year to sell the business. In most of the major regions of Canada, five specific reasons make selling sooner rather than later attractive.

Many factors determine the best time for selling a business, including the financial condition of the company, its valuation, growth cycles, profit history, and the current market. The best time to obtain the highest price usually occurs when sales and earnings are good and trending upward with a history of good performance. These factors give buyers confidence in projected future earnings.

Value is dynamic, and proper timing makes a big difference in the price paid for business acquisitions. External factors such as the economy, industry trends, stock market volatility, competition, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value.

Internal conditions within a company also change, often in combination with external factors, and sometimes independent of those factors.

When to sell

So how should you determine if 2018 is the right time for you to sell your business? The following are five factors Canadian business owners should consider.

1. Get a valuation. By first obtaining a business valuation you can see what your business is worth in the current market. This is an initial step in determining if a sale would meet your objectives. An experienced broker who is a chartered business valuator will do it for free.

2. What is the market like? Understanding the current status of the marketplace in different provinces is key. Booming provinces are going to pop up on a lot of radar screens as places to relocate or expand a business. Ontario gained more residents than any other province as the recession deepened in 2008 and early 2009 as job seekers migrated to one of the nation's strongest labour markets. In 2009 the Toronto metro area enjoyed the second-largest population growth of any city in Canada.

3. Investors are looking. Buyers in every category are looking for alternatives to traditional investment avenues. They are looking for stability, better predictability, and control. Business acquisitions offer all of these and can also offer a better return than traditional investments.

Ontario and Alberta businesses are prime targets because of future economic expectations and long-term outlook.

4. Changes to capital gains. The capital gains tax rate is presently at an historic low at 15 per cent. However, effective Jan. 1, 2019, this rate will increase, possibly by as much as 69 per cent. Therefore, business owners considering a sale should sell by Dec. 31, 2018, to keep more of their proceeds.

5. Number of buyers. Even in our current economy, the number of buyers exceeds the number of sellers and we have a robust small-business exit market. The time will come, however, when the flood of baby boomer business owners that are ready to sell will outweigh the ready buyers.

Fueling the market are the different categories of buyers looking to put their money to work by acquiring profitable businesses in areas with a good economic future. These include:

• Early baby boomer corporate retirees.
• Management-level layoffs who typically have severance pay or pension funds to invest and are looking to go into business for themselves.
• Foreign buyers seeing businesses as investment opportunities while the Canadian dollar is valued lower against their own currency.
• Thirty-something up-and-comers aggressively buying and building.
• Strategic buyers, both public and privately held companies, that are actively acquiring smaller firms as part of their strategy for quick growth and innovation.
• Investment buyers, such as private equity groups, looking to add to their investment portfolios.
• Blue-collar workers who have been laid off and are looking to “buy a job.”

If internal conditions, both business and personal, are right, 2018 is the time to consider selling a privately held enterprise.

However, because it can take anywhere from six to 12 months -- on average -- to sell a private company, business owners that are considering a sale should prepare now so they can take advantage of this exceptional, but impermanent window of opportunity.