Pre-Sale Preperation

PreSelling Preparation: Selling should occur in a deliberate, carefully structured and prepared environment. Sale structure, price and terms should be ready for presentation. Relevant facts buyers are looking for should be compiled for presentation and books and records of the business should be current, complete and ready for diligence. Also, plant and facilities should be clean, organized, uncluttered and prepared to show.

Will the Company be offered in a Share Sale or an Asset Sale? How much is the company worth and how can that price be presented and justified?  What and how much can be disclosed to potential buyers while maintaining Confidentiality?

Share Sale or Asset Sale: Owners will often think of their company as simply “the business” and tend not to think of it in terms of its legal entity. So,when time comes to sell, often no thought has been given as to whether an Asset Sale or a Share Sale. Perhaps the first step in preparation is to ask the question, is the company incorporated? Would the sale of shares rather than assets result in a favorable tax treatment. In Canada, share sale could mean a once-in-a-lifetime capital gains tax exemption. If the company is not incorporated, or if shareholdings are not structured to reap full advantage from the exemption, and if the gain from the sale would be substantial (and thus the tax substantial), the circumstances should be carefully reviewed. It may be worthwhile incorporating or restructuring and postponing the sale until qualifications for the capital gains tax exemption are met.

Sale Price Valuation: Over the years, privately held companies will typically be operated to generate as much profit as possible, while through perfectly legal and acceptable accounting practices, retain as little of those profit as possible on the books in order to minimize income tax liabilities. When it comes time to sell, those minimum retained earning will now show minimum earnings value (minimum goodwill value) to a business-buyer. Now, to show a buyer full earnings, profits that have heretofore been minimized must now be recast to show and justify the full value of the Company’s earnings.

Confidential Disclosure: A Confidential Business Profile or offering memorandum should be prepared. It should include a “blind” (non-identified) description of the company and its business activity. The business profile should also describe the current ownership structure and the structure of the proposed sale. It should lay out the financial history of the company and should present the sale price complete with definition and justification of both the price and valuation method. All facets of the business should be addressed in this document in detail, but in a manner that is “non-identifying” of the business or current ownership either directly by name or indirectly by any process of deduction. We suggest you maintain confidentiality until reasonable fit and serious intent has been determined.

Physical Preparation: Company books and records should be current, orderly and clearly presentable. Business offices should be organized, uncluttered, clean and businesslike. Warehouse, plant and/or production facilities should also be organized and uncluttered, and as clean and as may be practicable to the work and production function of the company.

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