Posts Tagged ‘sale’

The 2 Truths Every Business Owner Has To Face

Tuesday, May 3rd, 2011

There are 2 truths every business owner has to face.

You can’t sell a business which isn’t successful. No one’s going to buy a company that hasn’t consistently produced good profits and cash flow – which they believe will continue after the change in ownership.

No one is immortal. So, every privately owned business is going to be sold, to the next generation or a third party, at some point in time.

Why some owners ignore the second truth.

Building a successful company requires vision, developing a flexible strategy and actually implementing that strategy. Then there’s finding funding, hiring and keeping good people, dealing with customers and suppliers, managing/leading and I’m only getting warmed up…………………..

When building a successful business is totally absorbing and fulfilling why would you consider selling? When all of your time and effort is focused on dealing with what is happening now, thinking about an exit strategy seems irrelevant.

Here’s another reason. While all business owners start their companies because they have an idea they think is a winner – their baby – the people who currently own businesses come from at least 2 different generations. And with this, as with everything else, each generation views things differently.

Many older owners – if they even think about it in these terms – didn’t get into business for the capital gain at the end of the day. They got into it to provide an income for their families over their working life time and to build something tangible.

However, younger business owners – those in their thirties and forties – are more likely to be focused on selling before retirement age and doing something else with the money they make on cashing out.

Why you can’t ignore the second truth – especially if you’re older.

If you’re older you are, by definition, closer to the end (however you define it) of your career. And we know that a large number of Canadian business owners are closing in on 65 or 70 – or more. We also know that the majority of them haven’t begun planning for succession or a sale.

This is bad news. Here’s why.

If you build a successful company but make no plans for your exit you destroy the value you’ve created. It’s only a question of the degree to which you do it.

It’s not logical to end a career spent laboriously creating value by doing something that gives that value away.

So if you are an “older” business owner – or if you know someone who is – do something about it now.

It’s not too late – but it will be very soon.

If you’re not sure where to start speak to us – or others like us.

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4 Tips for Making your Exit a Graceful One……

Saturday, January 30th, 2010

About 4 years ago CIBC World Markets published a study which said that more than half of the owners of small businesses were expected to retire within 15 years.

At the time, 3 points paticularly caught my attention. The fact that the sale of their business was expected to generate roughly 30% of retirement income for self-employed people was the first (I am a Scotsman after all). The second was that approximately 40% of business owners were expected to sell their companies to outsiders or non-family interests. And finally, less than 50% of the business owners had a clear plan for exiting their business.

From what I can see not much has changed. You may find this hard to believe but there will come a day when the call of the golf course/boat/cottage/grandchildren etc. can no longer be ignored and even you will either want to sell your company or pass it on to someone in your family. So here are 4 tips based on the experiences of the companies we’ve worked with since the study was published.

Tip # 1. Plan your exit early and carefully. That way you’ll get the biggest financial return for the years of sleepless nights, missed vacations and everything else that you’ve invested.  You don’t ever want to look back and say “I could have got more for the company”. Even if you know who your successor will be, start early, don’t risk waiting until health or other issues pressure you to complete a deal and get out.

Tip # 2. For most of us, selling or passing along our business is a once in a lifetime experience, so talk to people who has already done it – or who have advised those who have done it. Think about things like how long a transition period you want – will you leave immediately after the transfer of ownership or will you stay on for a predetermined period of time? Consider how you would like the purchase price to be paid – are you willing to have some of it come from future profits? Talk to your personal financial advisor. Get him/her to update your calculations about how much you’ll need for retirement.

Tip # 3. Get the help of specialists to value your company and to structure the sale or transfer in order to handle the tax and legal issues effectively. The accountant who does your financial statements and the lawyer who does your contract work may not have a lot of experience buying and selling companies. Find someone who specializes in the valuation of companies (he/she may have the CBV designation).  If the valuation comes in below what you think the company is worth they’ll help you understand why and tell you what you can do about it (Another reason to start early – give yourself time to take a few simple steps that could increase the selling price.) They’ll also make sure you don’t overlook things like the value of any intellectual property you leave in the company. Similarly, find an accountant and/or lawyer and who works daily with the tax and legal aspects of the sale/acquisition and transfer of businesses. If you don’t know anyone we can recommend some specialists we’ve worked with.

Tipo # 4. Many business owners believe that it will only take a few months to dispose of their company, once they’ve decided to get out. That’s an incorrect assumption. Even with a successor waiting in the wings, it takes many months to put everything in place. If your buyer is an outsider rather than an employee or a family member it will take longer to complete the sale. Finding a buyer and then negotiating with someone you don’t know will take even more time.

To build and run a profitable business you have had to do many things well. Don’t let the last thing you do with that business be one of the worst.

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