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It’s all in the timing

With the economy languishing in Canada, many business owners are wondering if this is the year to consider selling their business.


May 24, 2013
By Mark Borkowski

With the economy languishing in Canada, many business owners are wondering if this is the year to consider selling their business. There are five specific reasons it would make sense to sell sooner than later.

There are many factors that determine a best timing for selling a business: the financial condition of the company, its valuation, its growth cycle, its profit history, and the current market. Usually the best time to obtain the highest price occurs when sales and earnings are good and trending upward with a history of good performance. This gives buyers confidence in projected future earnings.

Value is dynamic and proper timing makes a big difference in the prices paid for business acquisitions. External factors such as the economy, industry trends, stock market volatility, competition, investor confidence, interest rates, and geopolitical considerations are cycles of constant change that impact value. Internal conditions within a company also change. Often in combination with external factors, sometimes independent of those factors.

First, get a business valuation to determine what your business is worth in the current market. This is an initial step in determining if a sale would meet your objectives. You do not need to pay for a valuation. An accountant or an experienced mergers and acquisitions professional can work with you in determining value.

Understand that the current status of the mid-market business marketplace in provinces like Ontario indicates continued prosperity and growth in the province. The same applies for Alberta. We are going to pop up on a lot of radar screens as a place to relocate or expand for businesses. Ontario gained more residents than any other province as the recession deepened in 2008 and early 2009 as job seekers migrated to one of the country’s strongest labour markets. The Toronto metro area enjoyed the highest population growth of any other city in 2009 and has the highest population of any city in Canada.

Buyers in every category are looking for alternatives to traditional investment avenues. They are looking for stability, better predictability and control. Business acquisitions offer all of these and can also offer a better return than traditional investment opportunities. Most of Canada is a prime target because of future economic expectations and long-term outlook.

The capital gains tax rate is presently at a historic low. Therefore, business owners considering a sale should sell before the federal budget of 2014. This is when the small business gains exemption could change dramatically. The current capital gains exemption allows every bona fide shareholder the first $750,000 tax-free. 

Most importantly, even in our current economy, buyers exceed sellers, and we have a robust small business exit market for now. The time will come when the flood of baby- boomer business owners ready to sell will outweigh the ready buyers.

If internal conditions, both business and personal, are right, 2013 is the time to consider selling a privately held enterprise. I realize that the decision to sell is neither purely tax-driven, nor even a purely financial consideration. Business sales are usually motivated by personal factors.

However, because it can take anywhere from six to12 months on average to sell a private company, I suggest that business owners considering a sale prepare now so they can take advantage of this exceptional, impermanent window of opportunity.

With all categories of buyers in play, historically low interest rates as a result of the government working to make credit more readily available, the capital gains tax rate the most favourable in 40 years, and the future outlook of the Canadian economy positive, it appears to be an excellent time for business owners in Canada to explore their opportunities for exit.