I would like to posit the following situation.
Imagine an immigrant couple, citizens for the past 30 or 40 years who initially arrived in Canada with little in their pockets, but holding a passionate belief in the limitless opportunities this land of ours offered. Over many years, with long hours of diligent work they have realized their dreams through a successful business that has enabled them to support a family and generate wealth. Perhaps ten, fifteen years ago they purchased the building where they conduct their business – maybe they have expanded their operations to several locations. No longer eager to face the stress of maintaining the business, and looking forward to the opportunity to retire, they wish to pass the mantle on. Unfortunately, the children have grown up and moved on with their careers. The option left is sale of the business.
At this point a whole host of questions rise up to confront them:
• What do we do?
• What is the value of the business and its attached land and buildings?
• Who can prepare and market our business?
• What is the timeline to properly prepare for the sale?
As a commercial realtor and business broker, the first thing I recognize is that the principals of a business often view themselves less as asset owners and more as guardians – hence the desire not simply to sell, but to find a purchaser who will preserve their legacy. It is a slow psychological process to make the break from day to day activities and intimate involvement with growth and prosperity. Owners can make things more difficult by trying to control who purchases their business: the reality is that no one will be able to operate it as well and in the same fashion, as they did.
The best time to sell a business is always in a growing phase, and with renewable, active contracts in place. Business owners tend to shy away from considering selling the moment new revenues can be realized. The new growth becomes so invigorating to the owner that the sale of the business is often the last thing on their minds – of course this same excitement is what attracts potential purchasers. Foreseeable growth and secure contracts, along with a record of past success make it possible for me to obtain the most amicable financing for the purchasers, further increasing the number of good offers.
One misconception that many owners have is that they will lose any benefit from future net revenues if they sell now. In reality, in the pricing of any business, contracts and future revenues are priced toward the already established goodwill via a present value approach on the net returns. The advantage to the seller is that he does not have to wait to realize those returns; a portion of them are his upon closing further decreasing his risk. He can retire knowing that all his work, including unrealized profits, has been accounted for, and that his quality of life in retirement is assured.
The purchaser, meanwhile, gains entry to the business with an established cash flow and the challenge of increasing it.
Over the past six months I have consistently received calls from people who are considering selling their businesses. In response I will be writing a series of articles following the process of transacting a business - the first of which is featured in this month’s issue: “Cashing In - Advantage: Seller”.
As this series gets going you will be able to follow it on-line in the new “Resources” section that I will be adding to my web site. I have been asked to contribute some articles to the local papers which will likely be based on this series, but will contain more information (assuming that there is more space than the limited amount I have here!) I will let you know which papers, and when the articles will be in print.
If you should have any questions regarding the disposition of your own business that are raised by these articles, you are more than welcome to call me to discuss your position at your convenience. It would be my pleasure to give you an accurate estimation of value in the current market.