How to Build an Effective Sales Prospectus for your business
When you register your business on our website, keep in mind that taking the time to build a complete sale prospectus, will save a load of hours through the process. Indeed, a good prospectus will act as filter for the potential buyers and will limit the questions asked by some curious shoppers. The objective of this exercise is simple: to receive interest from only serious candidates. After all, who wants to take time to answer questions from dozens of potential buyers while you need to have the focus on creating value in your business?
In order to optimize your time, here is our vision of a sales prospectus at Gobex.co.
Before you start, remember that any information that can identify you at this stage is not recommended. You do not necessarily want the competition to use this information against you.
Nature of activities:
Briefly describe the company’s main sources of incomes, the industry it is in, the weighting of your local sales versus international. Do you have a competitive edge? Without going into details, take this opportunity to catch the reader’s interest with such edge.
Origin and control:
How many shareholders are they? Is there an employee share purchase plan? Are there any employees interested in taking some kind of participation in the purchase?
Describe the type of customers your company has, ex: SMEs between $1 and $5M, public organizations, individuals, multinationals, etc. Also explain the main source for customer acquisition, e.g. representatives, word of mouth, online advertising, agents, retail stores, etc.
Provide a snapshot of the wealth of the industry. Are you in a niche of low competition or in an industry filled with lots of competitors, where operational efficiency is the key to keep reasonable margins? Do you have indirect competition, that is, alternative products or services to yours? Are your competitors multinationals, SMEs such as yours or even freelancers?
How many employees does the company have? Provide an idea of the turnover rate as well as an idea of the average seniority. Do employees have employment contracts with non-competition clauses? Are they informed of your intention to sell or is it confidential at this stage? What do you think will be their reaction to a transaction? Are there any key employees interested in being a shareholder? As an owner, what are your principle tasks? Have you created an independent system or are you involved in the day-to-day? Is there a potential risk of key employees leaving following the transaction?
Do you own the building in which your business operates? If so, what do you intend to do with the building? If not, provide a summary of the current lease and renewal options, if known. Is the location crucial or can the company relocate and why?
Structure of the transaction:
Do you prefer to sell your shares and take advantage of the potentially available capital gains exemption in the case of a Canadian-controlled private corporation or are you open in selling the assets of the company?
How many years of service are you willing to offer to the buyer and under what conditions?
As an owner, are you willing to partially finance the buyer or would you rather get all of the transaction amount at the signature?
Would you be open to receive a compensation in shares of the company that would make your acquisition?
Financial history of the company:
Provide a brief overview of the company’s financial situation in the past, current and future years.
Are you doing Research and Development? Is this a significant part of your activities?
Provide an idea of your EBITDA (Earnings before, tax, interest, and depreciation). In order to do this, add the following expenses to your pre-tax profits:
• interest expense
• discretionary owner’s expenses.
— e.g. Expenses and/or salaries, which would stop in case of a merger, since it’s non-necessary expenses to the current operations.
• Less: adjusting the shareholders’ salary based on market value
— When shareholders pay themselves primarily in dividends or have salaries below or above the market value for the type of position they hold, adjustments are necessary. Simply subtract the shareholders’ salaries from the amount obtained above, and add the fair market value of their salaries.
We judge it is better to inform the reader of any issues that will come up in the due diligence review that could discourage a potential buyer, ex: lawsuits, issues with governments, etc. If your company does not have any skeletons in the closet, let the reader know! Otherwise, leave a warning. Because at Gobex.co, we believe it is better to be true to each other from the beginning! It will avoid unpredictable reactions in the due diligence process and save time and money to owners.