Why use us?
The majority of small and medium size businesses are still sold by word of mouth. A buyer contacts a business owner directly and makes an offer for the business. After some negotiation the buyer and seller agree upon a price and make a deal. While this approach seems simple and less costly for the seller, it generally ends up costing the seller much more than a broker's commission. The majority of sellers are not financial experts -- they have never sold a business before and have no idea about how much their business is worth. The buyer, however, uses the services of accountants specialized in business sale and knows the ins and outs of the business purchase before making an offer. Furthermore, since the business has not been exposed to other potential buyers, there is no way to know exactly what the business is worth. Also, the seller focuses so much on selling his/her business, and on the only one buyer he/she has, that he/she ends up accepting all kinds of concessions he/she wouldn't have accepted if the business was on the market. The result of this approach is that the business is sold at a lower price than market value.
At Toronto Mergers and Acquisitions, Brokerage, we heavily advertise your business to make sure that we will attract the buyers who will get the most value from your business, and as a result, will pay the highest price. We apply a rigorous selling process and we make sure that each step goes smoothly.
Reason(s) for Selling
It is important to understand the real reason why you are considering selling your business. You need to have a clear idea about what your expectations are and whether they could be fulfilled by simply selling your business. Also, most buyers want to know the reason you are selling. Buyers have a legitimate concern that your business might be threatened or might not be profitable. If the reason you are selling is not clearly and genuinely stated, the majority of buyers will assume their concerns are true and will walk away from the business.
Selling Assets or Selling Shares
The structure of the sale is very important and should be determined in advance to reduce any misunderstanding between the seller and potential buyers. We recommend that business sellers seek professional advice from their accountants and lawyers before making such a decision.
Asset Sale: The company sells all or part of its assets to the new buyer who will have a new legal entity. Assets that could be sold are hard assets such as equipment and real estate, or immaterial assets such as goodwill, reputation, patents and licenses, relationships with suppliers, systems, etc. In an asset sale, the company's liabilities might not be transferred to the new owners. The seller takes care of his/her company's liabilities such as debts, tax, previous contracts, and possible pending lawsuits. If the company for sale has a lot of hard assets, this structure might offer substantial advantages to the buyer as the new legal entity represented by the buyer might be able to depreciate this equipment again and save some tax in the years following the business purchase. Another advantage of the asset sale for the buyer is the depreciation of the goodwill.
Share Sale: The whole company as a legal entity is sold to the new owner. The buyer assumes all of the existing or future company liabilities. This structure offers however some important tax advantages to the seller. If the seller qualifies for the lifetime capital tax exemption, the first $800,000 of the deal might be only marginally taxable for the seller.
The majority of small business sale in Canada are asset sales since most accountants strongly advise their buyers to opt for an asset purchase to reduce the risk and uncertainty involved in a share sale. In some cases, some innovative win-win solutions are negotiated between buyers and sellers. The tax savings resulting from a share sale are assessed. Sellers agree to reduce their price reflecting a part of their tax savings, and buyers agree to accept more risk by buying shares. Also, Sellers agree to sign an agreement where they accept to take responsibility for any new liability that is caused by an event that had happened before the share transfer.