Tips for selling a small business and incorporating a succession plan into your strategy

Julie Cole started her label company, Mabel’s Labels, in the early 2000s when her toddler was diagnosed with Autism. She knew that having a child with special needs meant that she would require more flexibility than her career as a lawyer could afford her.

It was with this goal in mind that Cole, her sister, and two friends started making labels in their basements after their kids went to bed. With the help of bloggers, social media, and a few TV talk shows appearances, they soon grew a brand that is now a household name. Cole herself became the face of the company. Mabel’s Labels manufactures high-quality name tags, both self-adhered and iron-on, for clothes and other items that often get lost or mistaken for someone else’s.

Over the next decade Mabel’s Labels grew, allowing the women to quit their day jobs, move out of the basement, and establish a new headquarters in Hamilton, Ontario. At the time, they were bringing in $12 million in sales a year. Despite their success, Cole knew that she and her fellow owners needed to talk about an exit strategy. They were all feeling the strain of the rapidly expanding business. “Having said that, we didn’t exactly prepare,” Cole laughs. “We were approached, and the timing ended up being good.”

The suitor was label giant, Avery Products Canada. But before Cole and her partners agreed to a buy-out, they had some stipulations. Selling the business felt like selling their souls, so they wanted to ensure that the brand, the name, their employees and their facility in Hamilton all remained intact. Avery, in turn, requested that Cole stay on for a year to help the company transition and remain the face of Mabel’s Labels. Avery and Cole shook on the deal for $12 million.

Cole learned a lot from selling her business and shares that knowledge openly. To begin, she advises business owners to keep their paperwork and bookkeeping in order. Staying organized can make things easier if a buyer comes knocking. Also, she says professional financial and legal help is a must and warns that nothing is a done deal until it’s a done deal. Anyone can back out until you’ve signed on the dotted line.

Krystal Van Westerop, National Manager, Women in Enterprise at TD, says there are a variety of options to consider if you’re looking to exit your business. “There are the obvious ones, like selling, or passing your business down to a family member, but a business succession planner can really help you to figure out what works for you and your business. You’d be surprised at just how many ways a business can transition.”

Van Westerop has these tips for business owners who are thinking of selling.

Plan early

Van Westerop says that it’s best to plan your exit strategy before you need the money, want to retire, or become ill. You’ll want to ensure that your finances are strong in the years leading up to a sale for valuation purposes, and that you have interested parties already lined up. You’ll also want to keep an eye on the market conditions, so you can time your sale appropriately. Cole says that because they weren’t expecting a buyer to come along, their finances didn’t accurately reflect the value of the company. In fact, Mabel’s Labels had just made some significant investments. However, because their bookkeeping was in order, the partners were able to show that the company had been extremely profitable in previous years, and that they had invested wisely in their business. This simple step helped land them the price they wanted.

Get your professional team together

To help ensure that the sale goes smoothly and is tax efficient, you may want to work with a team that includes a financial planner that can provide  business succession advice, a lawyer, and an accountant. Since Cole knew this type of sale usually carries hefty tax implications, she had a conversation with her accountant during which they mapped out a strategy to meet her family’s financial goals and keep more money in their pockets. Cole warns that she has seen many entrepreneurs try to do everything for themselves, hoping to save money by not paying professionals. But in doing so have actually left money on the table.

Be prepared to play the long game

Van Westerop says a sale can be quick or it can take years, and there are many steps involved. Marketing the business and finding a buyer alone can take up to a year. Then there are valuations, non-disclosure agreements, negotiations, and financing to consider. Cole warns that even at the end of it all, you could still be left at the altar. Van Westerop recommends planning for anywhere between five months and two years to finalize and close the sale of your business.

Cole originally negotiated a one-year salaried position within the company, but it went so well she’s now stayed for almost five years. Even though the transition worked out well for her, Cole warns that not everyone will feel comfortable handing over the reins.

“Every sale will look a little different based on how you want to structure things,” Cole says. “But throughout the process, be true to yourself and what you’ve built.”