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ADVERTORIAL
Are you buying or selling a

business?

The market for buying companies is hot at the moment, with business owners
looking to retire and alternative investment funds with investable cash. Our firm
has represented buyers and sellers alike in the past providing us with a unique
perspective on what a seller should think about to extract the most value possible
out of the sale.

- Noah C. Jensen, CPA, CA, LPA

Timing Structuring the Deal
While traditional wisdom dictates avoiding market timing considerations There cannot be enough emphasis on the importance of thinking about
when making portfolio investments in publicly traded companies, timing whether to sell assets or shares when you have a business owned by a
will be a consideration when selling your privately held company. If you Canadian Controlled Private Corporation that is being sold. This will
are actively involved, when do you desire to be fully out of the operations? materially impact how much ends up “in your pocket” versus in the
Where are you at in the business cycle for your earnings trends? If you government treasury account. We all want to maximize our after-tax
are expecting business to fall off, are you willing to ride it out and put the proceeds. A share deal for $3 million might be acceptable to a business
work in to recovering things? Most transactions that have a significant owner with a business valued at $1 million and real estate worth $3 million
valuation will have a clause requiring existing management (even if if there is significant tax on the sale of the real estate and hundreds of
owner-managed) to stay on for a pre-determined time period to provide thousands in severance payable on retirement of the employees. The
for a smooth transition. accountant you use for advising on the sale of your company should have
Valuation experience in selling companies.
Valuation of goodwill for an operating company can be computed in a Advisors
number of ways, but generally a multiple of revenue, earnings or a You should have the right advisors on your side with experience in selling
discounted cash flow approach makes sense for small-medium sized businesses. The issue is not just with ensuring you get the right advice
businesses as there can be difficulty in applying a market value in shares from your advisors for making sound decisions on your end, but also the
or a business that is not frequently bought and sold. Prepare your financial purchaser’s advisors will be able to gauge the experience of your advisors
statements for sale by minimizing non-recurring items and any expenses and exploit any weaknesses throughout the negotiation and closing
not essential to the core business to enhance earnings. Keep running the process based on that lack of experience. Make sure you invest in a good
company as best you can. The most successful deals we’ve worked on lawyer, accountant, and broker (if you don’t have a buyer in mind already)
the owners were closing new business up to the closing date of the sale. to ensure you get the most value for you and your family at the conclusion
To ensure that you are maximizing value, you want to avoid any reliance of the deal.
on a major customer or supplier, reduce the need for ownership to run the
business, and establish as much recurring revenue as possible. Selling your business is oftentimes selling your life’s work. You should be
advised by a team of experienced professionals who are able to explain the
Any working capital in excess of what is needed to run day-to-day major issues and decisions that you face and how these issues are resolved
operations (excess cash, investments, etc.) are normally added to the in other common scenarios.
purchase price in share sales.
Business Practices Noah C. Jensen, CPA, CA, LPA is a partner at Racolta Jensen LLP, a
Maintaining good records, clean financial reporting, a healthy sales local accounting firm in Cambridge, Ontario. This advice is general in
pipeline, and having a self-sufficient team in place are all essential nature and should not be construed as tax advice specific to the reader.
elements to maximizing value. One of the reasons behind this is that an
investor purchaser is willing to consider buying the business in addition to
any strategic purchasers. More prospective purchasers will translate into a
better market and potentially higher valuation for your company.
Generating Interest
Depending on the size of company, the market conditions, relationships
with competitors and customers, you may consider a confidential listing
through online resources or engaging a business broker with experience in
your industry. Brokers will normally have a database of larger companies
who cannot organically grow as easily as smaller companies. These 47 Dickson Street, Cambridge, (519) 622-1485
companies will look at your company as a strategic opportunity to grow general@rjllp.ca | www.rjllp.ca
rather than investor clients who will look at a rate of return. There are often
synergies that generate a higher valuation.

24 Winter 2024 www.cambridgechamber.com