Will it be a Share Sale or an Asset Sale? What and how much can be disclosed to potential buyers while maintaining Confidentiality? How much is the company worth and how can that price be presented and justified?
Share Sale vs. Asset Sale. Often, owners think of their company as “the business” and tend not to think of it in terms of its legal entity. So perhaps the first step in preparation is to ask the question, is the company incorporated? This might be pivotal, particularly to a Canadian owner who has not yet used the 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.
Valuing the Company: Privately held companies are typically operated to make as much money as possible, but through perfectly legal and acceptable accounting practices, will report as little profit as possible on the books. These same accounting practices designed to minimize book profits (and thus tax liabilities), tend also to show minimum value to a business-buyer. If full value is to be measured, profits that have heretofore been minimized must now be recast and recaptured to maximize earnings, in order to show and justify the full market value of the Company.
A Confidential Business Profile or offering memorandum should be prepared. This package should include a “blind” 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 in detail and should present the sale price complete with definition and justification of both the price and the method of valuation. 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. Maintain that confidentiality until reasonable fit and serious intent has been determined.
Physical Plant Preparation will also be important. 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.