How to set up your business for an acquisition

When the time comes to sell your business, you will need to open up your operations and financial statements to the eyes of external parties. To improve the likelihood of selling your business for the best price, and to make the sale process as efficient as possible, there are a number of things you can do.

Preparation for the sale should start well in advance of the anticipated sale date. Depending on what needs to be done, you should think about getting ready anywhere from one to five years in advance.

Cleaning up your balance sheet is a good first step. Balances owing to or from related companies should be paid off or otherwise eliminated early in the process. Potential purchasers won’t want to buy these types of assets and liabilities. If part of the tax plan for the sale is to use the lifetime capital gains deduction for shares of a qualified small-business corporation, you’ll want to make sure the company is eligible. To qualify, 90% or more of the value of the assets of the company have to be used in an active business carried on in Canada at the time of sale. There is also a two-year test prior to sale that needs to be reviewed. Advance planning is critical so that you have time to take corrective action well in advance of a potential sale.

Next, you should look at selling off assets that aren’t part of the core business operations and removing excess working capital. There may be a number of tax-advantageous ways of doing this, so make sure you talk to your tax advisor.

Once the balance sheet is cleaned up, you should turn your attention to the profitability of the business. This could include reducing discretionary spending and eliminating less profitable lines of business, among other measures.

If your financial statements are prepared on a compilation basis, you should consider upgrading to at least a “review engagement” as that will provide additional comfort to a potential purchaser that your accountant is doing more than just compiling the financial statements. Finally, you should prepare yourself for the due-diligence process that potential purchasers will want to perform on your company before they complete a transaction. You may want to go so far as to engage an accountant/business advisor that is experienced in due-diligence work for potential buyers and can help conduct a due-diligence review on your company before you put the company up for sale. This will let you know the types of issues that may come up and give you time to take whatever corrective action is necessary well in advance of the sale.

Today’s buyers are more cautious than ever. When the time comes to sell your business, you want to make it as easy as you can for a purchaser to pay you the highest price possible. Up-front planning can make the process easier and more profitable for you.