MAXIMIZING SHAREHOLDER VALUE PRIOR TO A SALE OF YOUR BUSINESS

Updated: Feb 20, 2019




In planning for succession (via a sale), you may want to keep the following information top of mind.

Maximizing Shareholder Value

All business persons know how to package, market and sell their products and services. Few however, know how to package, market and sell their company!

The information contained in this blog post should get the juices flowing. There are 6 major categories that should be considered prior to selling any company:

  • Improving Financial Position

  • Strengthen Key Management

  • Reduce Industry and Company Risk

  • Convert Personal Goodwill Into Commercial Goodwill

  • Selling Cycle

  • Tax Planning

1.0 Improving Financial Position


Before selling a company, financial preparatory work is essential. Tax planning needs to be considered before implementing any of the actions suggested below.

1.1 Balance Sheet

Up to two years prior to selling, the weaknesses inherent in a company's balance sheet should be addressed. A company's value can be enhanced through:

  • ratio analysis comparing industry norms to company norms and identifying areas to improve

  • improving liquidity ratios by reducing outstanding accounts receivables

  • removal of non-operating assets on a tax-advantaged basis (condominiums, term deposits etc.)

  • reduction of non-operating loans

  • acquisitions of new technology to create production efficiencies

  • clearing any contingent liabilities

  • cleaning up past tax issues with Revenue Canada / IRS and provincial and state tax authorities

  • stabilizing inventory costing

1.2 Earnings Statement

  • ratio analysis to compare results to industry norms and identify areas of weaknesses

  • reducing non operating and non recurring expenses to a minimum

  • reducing payments to family and spouse if not involved in the company

  • reducing excessive interest cost

  • renewing long-term leases or putting long-term leases into place if the company is location dependent

  • reducing bad debts by proper credit control

1.3 Administration

  • Ensuring monthly financials are available on regular basis

  • Establishing excellent credit relations with bank

  • Ensuring year end financials are available within six weeks of year end

2.0 Strengthen Key Management

A major strength in selling is the management team of the company. To enhance value:

  • Train back-up personnel for key areas in sales, project management, finance etc.

  • Put into place a comprehensive compensation package which will reward exceptional key personal

  • Identify outside consultants that can aid in a transition

  • Create a board of directors - advisory group - with outside expertise

3.0 Reduce Industry and Company Risk

  • Identify key products and services and assess long-term potential

  • Plan for introductory new products and services

  • Increase sales to a wide variety of customers or clients

  • Ensure there are at least two to three suppliers for each major major raw material purchased

  • Ensure use of sub-contractors is spread over several groups

4.0 Convert Personal Goodwill Into Commercial Goodwill

  • Ensure long-term contracts with customers and/or suppliers

  • Patent or trademark products, services or trade names

  • Brand products or services in the marketplace

  • Put key management in place

  • Identify intellectual capital ( customer, structural, human in addition to financial)

5.0 Selling Cycle

There is a time to sell every business. Having one's house in order does not mean that value will be maximized. The best time to sell is when:

  • Merger and acquisitions of large companies are in an upswing

  • The stock market is strong, especially for small capitalization companies

  • The economy has been growing for several years after a downturn

  • Market activity for small and medium size companies is strong

6.0 Tax Planning

  • Ensure the company is a Canadian Controlled Private Corporation (CCPC) and eligible for the $750,000 capital gains exemption if applicable

  • Merge or consolidate subsidiaries and sister companiesBlogging from Your Wix Blog Dashboard




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