About Selling your company

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This is very important question to all parties. We understand your need to know, but we assure you that the answer is critical to your buyer and the banks too. We have provided a detailed answer here.

Another common question and one that must be resolved before we go to market. When we value your company, it’s based on a number of factors that can be supported by facts. If you have support for a different number, we will seriously consider it. If, however, your number is merely a wish or based on an unsubstantiated opinion, it would be a mistake to go to market with it. This is a business decision and there is a maximum that your business can generate to pay the cost of its acquisition. Any more than that maximum will cause the business to fail – and this calculation is easily performed by buyers, so why would they buy a business that can’t succeed?

We’ll show you the calculations and rationale for our pricing. If you wish to see an overview, we have provided a description here.

Your financial statements document the past—from a tax perspective. That means your profits have been reduced by amortization, depreciation, interest on loans, discretionary expenses such as donations and several other items a new owner might not have on his income statement, even if the company operates in much the same way.

Buyers (and especially their banks) want to see the likely future of your business without the tax issues and personal choices you made. Therefore, they produce Normalized statements to show the earnings that could be expected for the following year. To make your statements normalized, all the aforementioned tax and personal expenses and extraordinary (non-recurring) revenue and expenses are removed – with some exceptions such as required equipment-replacement costs.

There may be further adjustments for updated facility costs and the replacement of an essential shareholder-employee or family member. The result is a financial picture of your business as it can operate normally and this is the operation that you are selling.

This is not a trivial question. Many programs and organizations are dependent upon getting the ‘right’ answer to this question. And it depends where you are and why you’re asking. There are no universally accepted measures. If you are reading documents from the US, they have several variations to define SMEs (Small to Medium Enterprises), while the EU defines SMBs (Small to Medium businesses) somewhat more consistently, but differently from Canada and the US. The rest of the world is using variations of their own as well.

First on our list are Industry Canada’s definitions, the only set with five groups:

  • MICRO businesses employ 1 to 5 people.
  • SMALL businesses producing goods, employ 5 to 100
  • SMALL service-based companies have 5 to 50 employees
  • MEDIUM companies are those larger than ‘Small’, in respective categories, employing up to 500
  • LARGE companies have more than 500 employees

Note that none of the measures mention full-time vs part-time which is an indication of the looseness of the measures. Canada Small Business Financing Program, although run by Industry Canada, uses a different definition. They care more about sales. To them, a small business generates less than $5M in annual revenue, and they don’t need to define the others.

StatsCan and BDC (the Business Development Bank of Canada) both use a simpler division by employee.

  • SMALL is defined as employing 1 to 99 without mention of full-time or part-time
  • MEDIUM companies have 100 to 499
  • LARGE companies have 500 or more employees

If you are applying for a program of some kind, be aware that there are other program-specific definitions. The Canadian Bankers Association measures size by the company’s credit limit and the Export Development Corporation measures… what else? – exports.

The penultimate definition goes to the Treasury Board of Canada Secretariat, which says a SMALL company has fewer than 100 employees AND annual gross revenue of between $30k and $5M.

And at Equitas, we use revenue to determine if you meet our criteria. An Equitas client has between $1M and $30M in revenue, which we define as SMALL (up to $5M) to LOWER-MEDIUM.

Our typical process is described here. If you have ideas or believe your circumstances are unique, we will address those in person. It’s always interesting to hear new ideas and come up with creative solutions.

In our experience, a minimum of 4 months and an average of 8 months. As confirmation, an analysis of 9,000 transactions in the USA showed an average of 6.8 months to sell a small-medium business. Of course, averages include much shorter and much longer times. Canadian transactions are often a little slower due to our more-limited lending options. We might be able to give you a better estimate based on your specifics.


  • The appeal of your assets and the potential for increased earnings.
  • Your ability to respond to questions quickly and accurately.
  • The market demand for your type of business.
  • The coincidence of ‘good timing’. Your best potential buyers might be busy on other projects.
  • The type of economic forecasts in the media can affect buyer confidence… however, good businesses will always appeal to buyers.
  • The ability of the buyer to obtain financing

A holdback is a portion of the purchase price (typically around 10%) that is not paid at closing. The purpose is to have a fund against which the buyer can make claims and get restitution for unforeseen or undisclosed liabilities without litigation.


These are some common concerns that holdback funds could be used to address:

  • AR, AP and inventory adjustments that were unknown at closing
  • Seller’s failure to fulfil the agreed-upon training period or transition support
  • Tax and remittance deficiencies
  • Legal liabilities resulting from the Seller’s prior actions
  • Warranty claims
  • Employee and WSIB claims

The holdback funds are placed in a trust account with the closing lawyer and paid after predetermined timing and/or specific conditions have been met.


One approach is to look at the issues covered by the holdback and to estimate when each concern is reasonably beyond being a problem.


Negotiate a minimum and maximum for claims. A minimum amount (floor) for claims prevents buyers from proposing a large number of small, nuisance disputes. A maximum (ceiling) can help the seller direct serious matters to litigation and prevent the funds from being easily consumed.

Technically, no. Realistically, you will be better off with a broker. Here are some of the reasons.

THE RIGHT PRICE. You naturally want the best possible price. An experienced broker knows how to find it. A too-high price will waste a year of your time and all the money you will spend on legal and accounting services. By the way, we often hear that, “My (advisor) says I should get $X for my company”, when $X is often 50% more than what the market will pay.

TEAM EXPERIENCE. Our brokers have been through many transactions and learned a great deal over the years. You will want that knowledge on your side. This is not the time to learn from your own mistakes.

CONFIDENTIALITY. Most business owners do not want customers, employees or suppliers to know they are selling. A broker identifies the business only to prospective buyers who have been qualified to be serious and capable buyers. The broker secures a non-disclosure and confidentiality agreement from every qualified buyer prior to the release of information.

BETTER MARKETING. Not only can the broker advise on preparing the business for sale but he can also undertake a multi-pronged marketing program to give maximum exposure. There is no MLS system for businesses, so a broker uses his experience with various internet sites, direct mail, and database marketing. They can be far more effective than any owner could manage themselves.

NEGOTIATING SUPPORT. The business broker is experienced in negotiating price, terms, and other key aspects of the sale. Most negotiations fail due to the accumulation of small grievances over a too-lengthy process. The broker has an expediting and conciliatory role the owners themselves cannot effectively provide.

PROTECTION. Business brokers have knowledge of the legislation and documentation necessary to protect the parties, guard against delays and problems, and avoid the ‘buyer fatigue’ that spoils many deals. Equitas will provide you with detailed preparation and decision-making guides.

YOUR TIME. Marketing and qualifying buyers is very time-consuming. You can’t afford to take your eyes off the company at this critical time. In fact, this is when your operations, projects and people need extra attention to ensure that everything is going well.

FEES FOR SUCCESS. If you are going to use your professional advisors to help you through the process, how much will that cost? As your broker, we invest all of our time and the resources described above, into your business. If we succeed and close a sale, we are paid. If we don’t sell your business, you owe us nothing.

For the reasons above, almost all companies in the $500K to $10M range are sold by brokers.