What counts as cleaning up a business before a sale?

Cleaning up is not one task but the set of loose ends that would otherwise surface in a buyer’s review. BDC says unaddressed issues complicate a sale because the buyer has to deal with them without the knowledge the seller has, and that this could affect the price or terms. Financial records are one category, covered in depth in cleaning up financial records. The rest of the list is below.

Records and one-off expenses

BDC lists the records a valuator typically reviews: financial statements, the prior-year tax return, discretionary and non-recurring expenses, management compensation and a list of employees. Cleaning up means each is complete, consistent with the others and explainable, so a buyer can see which costs are the owner’s own and which were one-time.

Corporate filings and tax accounts

Every federal corporation must file an annual return with Corporations Canada every year, and filing avoids potential administrative dissolution; the return is separate from a tax return. A company incorporated under a provincial statute is a separate question for that province’s registry. The CRA’s page for sellers lists what comes up at a sale: the business number, the payroll and GST/HST accounts, and changes of ownership. Confirm which of these the business holds and that each is in order.

Registered security interests

A lender or other creditor may have registered a security interest, also called a lien, against the business’s personal property. In Ontario you can search the Personal Property Security Registration system through Access Now to find out whether one has been filed; check your own province’s registry if you are elsewhere. Searching yourself first leaves time to deal with any registration you find.

Equipment and customers

BDC says you will not get full value for your business if you are not maintaining your equipment or if there is customer concentration risk, and that while you may not resolve every issue before the sale, it helps to show a buyer a plan to address them. Clean-up therefore includes servicing neglected equipment and having an answer ready on how concentrated revenue will be handled.