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Five Key Considerations as You Prepare Your Business for Sale

By May 19, 2020October 20th, 2020No Comments

Thinking of Selling Your Business?

After the years of hard work that have gone into building a business, it comes time for you to think of what comes next. You’re certainly not alone. More than 40% of Canadian business owners are currently approaching retirement or considering selling their business over the next 5 years. Whether you’re looking to retire, or simply looking for a partner to get your business to the next level, here are some key considerations to keep in mind as you prepare your business for sale.

Our Essential Checklist

1

Consider Your Timeline Expectations

Selling a business can be a longer process than you would think. Beyond the team introductions, management meetings and initial valuation estimates, most buyers will want to track how the business trends against projections over several months. This allows them to confirm the valuation of the business, but the process can take from six months to up to a year. Prepare yourself and your team for this ahead of time.
2

Optimize Your Business Valuation

This is an important time to get your business into tip-top shape. Improving operational costs and driving up your margins (particularly those relating to EBITDA) are good ways of preparing for a sale, as they impact the valuation of your business. However, these improvements need to be balanced with appropriate ongoing maintenance and upgrade costs for equipment and operations. If these have been pushed to the backburner, buyers will consider the cost implications of deteriorating equipment in the future and lower their offer price accordingly. This is an important balance to maintain as you go over your costs and operations.

Secondly, take a look over your accounting practices. Most businesses that have not had to present statements to parties other than the CRA often struggle with the speed and volume of reports required by a buyer. Making sure that you have a sound accounting system drives down the time required by an investor to adjust your statements for proper evaluation. Even better, you could prepare your team to be able to draw these reports more quickly. It doesn't hurt to seek advice from your accountant on this matter.

3

Assess Your Strengths & Weaknesses

Take advantage of the opportunity to assess your strengths and weaknesses. You’ll need to be upfront about both aspects of your business to the buyer. If undisclosed weaknesses crop up later, this can derail the sale process and erode goodwill with the buyer. Instead, take time to mitigate any threats or weaknesses ahead of time and be forthcoming about those you cannot. This will build trust as well as give new ownership a better opportunity to draw up business development plans to target these issues in the future.
4

Present Yourself as an Acquistion Target

What kind of new ownership are you seeking? How is your company positioned to appeal to them as a target acquisition? In the race for initial organic growth, small businesses can branch into a variety of different revenue streams. However, this can make them less defined targets for acquisition. Prior to sale, consider your primary processes as a business. How do you position yourself as an attractive leader in your core field(s)? Focusing on the elements of your business that have led to your success can assist with determining how you market yourself and attract the right kind of buyer.
5

Prepare Your Management Team

Finally, consider the approachability and preparedness of your management team. Buyers who operate with a more ‘hands-on’ approach tend to yield better growth results from the businesses they acquire. However, the future relationship they will go on to build with your management team will be key to achieving this success. Make sure to lay the foundation for a positive rapport between your executives and the buyer by talking through the process with them. Think about the depth of the team and how much of your knowledge and relationships have been transitioned to each team member. Prepare management for both the sales process and the transition of essential knowledge and relationships – their capability and support can make or break the ongoing success of the business under new ownership.

If you have children working for a family business, consider their roles post-acquisition. If they wish to continue with the company, you will need to evaluate their qualifications. Many successful executives and managers learn their industry through the practical process of setting up a business. However, this experience is ideally shored up with more formal qualifications as they continue with their professional development. Moreover, having a more qualified management team on deck will ultimately drive up the valuation of your business at sale. Furthermore, it will help secure the roles of family members as the business operates and expands under new ownership. In short, talking this consideration through with your family will better position them for success post-sale.

Considering selling your business? Or just want to learn more about the process? Get in touch with us at CAI Capital Partners, the trusted partners for Canadian business owners.

Author: Ashton Herriott, Director

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