What are the seven steps to selling your business?
When a business goes on the block, it is not just buyers who investigate. Smart sellers come to the table knowing their competitive position, a realistic asking price and a buyer's suitability well before they negotiate. As baby boomers continue to retire in droves, many independent Canadian businesses will change hands — and these seven steps help you stay on the offensive.
1. Determine the value of your company — a third-party valuation (often $5,000 to $20,000) reviews sales, receivables, inventory, assets, debts and the competitive environment; private businesses are typically worth 3 to 6 times annual cash flow, depending on financial health, industry and demand
2. Clean up your financials — work with an accountant to present clean statements and tax returns going back 3 to 7 years, account for all assets and liabilities, and keep personal assets off the business books; expect requests for year-to-date results if statements age past three months
3. Prepare your exit well in advance — don't let an aging owner, disinterested heirs or a new competitor force a sale; plan now, and if you sell to an outsider, allow enough transition time for them to get comfortable
4. Boost your sales — buyers want upside, so declining sales are a poor time to sell; diversify if any single customer exceeds about 10% of revenue, clear bloated inventory, modernize systems and release non-performing staff
5. Pre-qualify your buyers — don't get carried away by an offer; banks often want the seller to finance a portion of the deal, keeping you invested in the new owner's success and cultural fit
6. Get business contracts in order — prepare the asset purchase agreement and its exhibits (non-competes, asset listings, employee agreements, domain names); expect to stay briefly in an advisory role, kept as short as possible
7. Find a sell-side advisor — you may be a great operator but a poor seller of your own business; brokers suit companies under $500K EBITDA, while M&A advisors fit the $500K to $3M EBITDA range and add the most value through due diligence, where deals often fall apart
Key facts: seven steps to selling your business
Seven steps: value the company, clean financials, plan early, boost sales, pre-qualify buyers, order contracts, hire an advisor
A third-party valuation runs about $5,000 to $20,000; private businesses fetch roughly 3 to 6 times annual cash flow
Keep 3 to 7 years of clean financials and tax returns; watch customer concentration above ~10%
Advisor by size: brokers under $500K EBITDA, M&A advisors $500K to $3M EBITDA
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Disclaimer: This article is for general informational purposes only and does not constitute legal, tax or financial advice. Consult qualified advisors regarding your specific circumstances.
