How to prepare to sell your small business

Who would you ask about how to sell your business? Every small business is unique and there aren’t always straightforward answers when you’re looking to exit. This challenge is coming into focus now as there’s a generational shift coming, with 76% of Canada’s business owners planning to exit their business within the next decade, according to the Canadian Federation of Independent Business.  

Scotiabank's 2024 Path to Impact Survey found that nearly one-third (36%) of small business owners in Canada are planning to keep their business within their family. However, more than a third of businesses polled (35%) by Scotiabank said they do not have a succession plan in place at all. Whether you’re planning to pass your business on to a family member or sell to a new owner, you need a proper succession plan. 

Let’s break down succession planning for small businesses.  

What is succession planning? 

Having a succession plan can help you exit your business on your terms when you’re ready without any residual obligations. It can also help keep operations running smoothly during the handover and help the new owner with everything they need. 

Many small business owners haven’t ever thought about how to prepare for a change of ownership. Sometimes life can come at you quickly and due to health concerns or other surprise responsibilities, you may need to exit your business sooner than expected.  

Your succession plan, also known as your departure plan, should include: 
 

• Business licenses, registrations, and other legal requirements 

• Information about your business’s financial value 

• Employee and operational details 

• Details about your time frame for leaving 

• Proper handover to successors, including training to new owner and staff 

How to sell my business? 

If you haven’t thought about preparing for a change of ownership, you may not have considered how to go about selling your business. The process of transferring an actively operating business can feel daunting.  

Here are some next steps to consider: 

Check that your financials are in order 

Ensure that your business plan is set, with past profits recorded and future growth projected. Measuring the four financial ratios is a good way to evaluate your performance. 

Review your book of business 

Now is the time to ensure your back office is running smoothly and efficiently. This includes record-keeping and standardizing all processes for data. This is a good time to go over any legal contracts or business agreements to identify and resolve any issues that could pass to the new owner. Pre-existing legal issues have the potential to impact the terms of a sale.  

Approach a valuator for a report 

Business valuations can vary from a basic calculation to a more comprehensive report that includes analysis in support of the value of your business. The assessment will be based on your earnings, the market, and/or your assets.  

Find the right buyer 

Entrepreneurs often work with a variety of people to find the right buyer. This can include accountants, lawyers, business brokers, or your own network of industry contacts.  

Having a smooth-running ship is essential to market your business as a tidy package for buyers. In fact, 45% of the small business owners surveyed by Scotiabank said that it’s crucial to modernize their business through digital transformation to help with its sale/transition. It is important to be able to demonstrate that your business’s processes and infrastructure will easily transition to the next owner.  

Learn more about how Powerpay Payroll and HR Advisory can help.  

How do I plan for a family member to take over for me? 

Many small business owners plan for a family member to take over their business. Check in with your family member about your projected time frame. They may be ready to assume ownership in the near term, or they could need more time to complete other work.  

Consider setting aside some time to train your family member on all aspects of the business. Set up dedicated meetings to go over business financials, daily operating procedures, and specific training they will need to succeed as the new owner. Spacing these meetings out can help make this training more digestible and help you give each area the necessary attention.  

Running a business and managing employees can come with complexities. Having the right advisor and labour lawyers can be helpful to build out the framework of your business, such as your employee handbook, termination provisions, and other employment requirements.  

How do I prepare my employees for change?  

Creating a detailed succession plan can help give the new owner of your business an optimal start and a smooth transition for all your employees. Change can be unsettling. It’s important to have a plan to retain your employees, as well as customers, as you prepare to sell your business.  

Communication is key. Provide your employees with any information they need to know to help them develop trust with the new owner. You don’t want to overload your people with too much information. The right amount of information answers questions and avoids speculation.  Give sufficient notice and training for any responsibilities or tasks that you’re transferring to different team members.  

Succession planning is all about showing the clear road forward, for both the full team and individuals. Spend some time talking to your people mapping out their individual career path so they can continue to see themselves working at your small business after you’ve moved on. While the new owner adjusts, it’s good to have a plan in place for who will carry out which roles and specific tasks to help keep operations rolling. 

Pay is one of the most important elements of the employee-employer relationship. Ensure that you have an airtight operations plan for smooth payroll coverage so there aren’t any gaps during the transition.   

Build a plan that helps you reduce your workload and maximize the value of your small business. Having the right business support can facilitate a clean transition for your exit. If you have the right partner as your back office for payroll, your business will be more attractive to prospective buyers. New owners can pick up where you’ve left off with standardized payroll and automated processes to keep operations running smoothly.  

Investing in strategic financial advice and business support can help you make informed decisions based on your unique situation. Learn more about how Powerpay HR Advisory and Payroll can help your small business with your succession plans.