Business owners make years (decades, really) of sacrifices and take significant risks to grow and build a successful company. The sweat equity put in during the early years, though, doesn’t necessarily create a saleable business.
In order to create a saleable business, you have to ensure it is a turnkey operation. The best way to look at it is through the eyes of a franchisor. Ask yourself, "What are critical parts of your business that a buyer would need to know in order to run your business and where will they find that information?"
This way when an opportunity for a merger occurs, your business is acquired at the purchase price that works for you.
Buyers of a private company take considerable risk, as did the business owner that built the business. Thus, it’s truly a rigorous negotiation to determine the value of a business upon sale. If you leave yourself 2-5 years, you’ll have good odds of developing the right business processes to increase the value of your business.
But if you start 5-10 years in advance on your succession planning strategy, you can create more value than you’d ever imagine. Why, you ask? Because it takes time to develop the financial plan, infrastructure, and data required to answer the questions that will be asked by a prospective investor.
“Planning is bringing the future into the present so that you can do something about it now.” — Alan Lakein
When an owner retires from a business, a significant (and concerning) amount of institutional knowledge is lost. The owner made thousands of decisions over the years to grow the organization's market share and crafted the business as it is known today. When that owner moves on, the only hope of the business having continuing value is if the management team that helped the owner build the business remains largely intact and engaged in the day-to-day operations of the business.
Thus, if an owner wants to maximize the value of the business upon a merger and acquisition (M&A) deal, it is incumbent upon the owner to ensure that the customer experience, operational (digital technology), human resources (training and development), financial, and marketing management of the business is, and remains, well looked after.
The shareholder, or business family, must ensure that there are management incentive plans in place that encourage retention. Key managers should also be carefully involved in the process of choosing a target company so that they’re engaged with prospective buyers and don’t get disenfranchised when the current owner moves on.
Finally, an engaged management team, in many cases, is the best buyer of the business. Management buy outs are one of the three primary exit plans that can be pursued by an owner and they often lead to the best valuation for the owner.
“Most people don’t plan to fail, they fail to plan.” — John L. Beckley
Regardless of whether you exit by way of a family transition, a management buyout or a third-party sale, it is imperative that the seller follow a professional sale process. It is not sufficient to put a tender in the newspaper and “see what pops up.”
M&A transactions involve preparing the business, ascertaining the value of the business, identifying and enlisting buyers with marketing documents, negotiating through the due diligence process and structuring the deal prior to final negotiations.
Our Succession and Exit BluePrints are designed to provide you with a monthly affordable fee over a three-year process. That time period allows you to adequately prepare and management the eventual sale so that the deal closes and generates the funds you need to retire or pursue other interests.
BluePrint provides digital transformation and business planning strategies to life science, food processors and many other SMBs across Ontario, including Windsor-Essex, Chatham-Kent, Sarnia, London, Toronto and Montreal. If you want to learn more, set up a Freebie Chat with Kit today and find out how your business can accelerate its growth.
Kit Moore, CPA, CA is a serial entrepreneur that is crazy about strategy, tax structuring and building successful businesses If you’re looking for a small business advisor to help you sell your business, check out this video before you make your decision.
Rebecca is a Web Designer at BluePrint CPAs. She is a graduate of St. Clair College’s Internet Applications and Web Development Program and has worked as a freelance web designer before joining the BluePrint team.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Kit Moore, is an entrepreneur that simplifies digital strategy for other business owners. The team at BluePrint CPAs can assist you with web design, development, analytics, management systems and, more importantly, your overall business strategy. The toughest part of digital transformation is re-training your team - and we have pros to help with that as well.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Kit Moore, is an entrepreneur that simplifies tax and financial strategy for other business owners. The team at BluePrint CPAs can assist you with financial technology, tax strategies, mergers & acquisitions, succession & exit planning and, more importantly, your overall business strategy.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
Joe is a Senior Associate, Strategy Consulting at BluePrint CPAs. He is a recent graduate of the MBA Program at the Schulich School of Business and has most recently worked for Bayer Inc and the Ford Motor Company of Canada. His experience in marketing, sales, and human resources spans various industries including hospitality, logistics, life sciences and automotive manufacturing. Joe loves working with entrepreneurs to develop their digital strategies and help them grow their business.
BluePrint CPAs is a management consultancy that simplifies digital, financial and talent strategies. Our team helps entrepreneurs and their teams grow profitable and modern businesses.
