Selling A Business in Ontario

Customer Concentration is an important factor when you decide to start the process of Selling a Business.

One of the questions you can be assured that a buyer will ask when reviewing a selling memorandum on a business for sale is how much of the revenue represents a few key customers?  The answer they want to hear is that no one customer accounts for more than 5-10% of revenue; this is viewed very favourably. 

Another favourable answer, if you do have a majority of your sales with a few key customers, is that you also have long-term written contracts with them.  When you decide to sell your business, review the expirations of your key customer contracts and if they are imminent, get the contracts resigned prior to going ahead with selling your business.

Assets When Selling My Business: Employees

 Employees are an asset that affects the value of your company when you decide, “it’s finally time to sell my business”.

When meeting with an owner who is selling a business in Ontario a buyer is always comforted by the company’s most important assets: its capable employees in management positions. This is especially true when the owner decides; “I will be available for a transition period when I sell my business in Toronto, but not beyond that”.  

Senior positions staffed with proven professionals give buyers confidence. As the old adage suggests, employees are a company’s greatest assets. A company’s employees are its intellectual capital. They offer valuable skills and experience to maintain the flow of the company during the transition and afterwards.

Attracting and keeping skilled employees can only benefit your future plans of selling your company. In order to do so, try the following tactics: implement employment contracts, non-competes, successor plans, and equity incentives. Also, be sure to recognize talent shortcomings and seek out appropriate candidates.

Buying a Business with a Partner? Plan Ahead.

“It is rare to find a business partner who is selfless. If you are lucky it happens once in a lifetime.” -Michael Eisner

There are number of reasons why people decide to go into business together. For example, talents (one person is a finance person and one person is a sales person) or financial resources (some people have funds they are willing to invest and other people have the ideas).  It may also be a safety blanket to go into business with another person rather than going into the “unknown” alone.

Since partners are liable for the business activities of the other and a partnership is typically much easier to get into than to get out of, you’ll want to achieve mutual clarity upfront. Engage a good business lawyer to draft legal documents that are specifically tailored to your business circumstances. You should discuss the following two agreements with your legal advisor.

1) Shareholders Agreement - This agreement details the duties and responsibilities of each partner and how the work load should be divided between the two partners.  For example, it will deal with what purchase decisions should made together (say purchases over a threshold of say $20,000) and how disputes will be resolved along with how profits will shared and how borrowing decisions will be made.

2) Buy-Sell Agreement - also known as a buyout agreement, is a binding agreement between co-owners of a business that governs what happens if a co-owner dies or is otherwise forced to leave the business, or chooses to leave the business.  It may be thought of as a “business will”. This agreement will outline who will be entitled to what if the partnership doesn’t work out.  An agreement will be made on how to value the business, for example by a Chartered Business Valuator or a certain multiple of EBITDA.

An insured buy–sell agreement (triggered buyout is funded with life insurance on the participating owners’ lives) is often recommended by business succession specialists and financial planners to ensure the buy–sell arrangement is well-funded and to guarantee there will be money when the buy–sell event is triggered.

You expect your business partnership will last, just like you expect your marriage to last when you get married.  The cold reality is that it may not.  People change, situations change and it is better to discuss this up front so when the time comes, you have already dealt with the potential issue and agreed what should be done in advance. Enlisting the assistance of an experienced business broker is also a prudent choice as they will be able to guide you through the partnership planning process.