EASY EXIT PLAN
Step Three – Negotiations and Deal Structuring
To run a professional M&A process we bring in your tax specialist, your transaction Lawyer, Landlord and sometimes Lenders to form the structure of your professional team. (And the odd Psychotherapist for nerves and realignment).
As active buyers come to the table we transition to Secure Data Rooms to navigate the transaction with superior security and confidentiality. We quarterback the transaction and negotiations and walk you all the way through to the Closing Day and often beyond. Nobody is saying what we do is easy. We but we have a great system that is customizable and it shows in our FIVE STAR GOOGLE REVIEWS.
Common questions about selling a business
How to value your business for sale?
You can either pay for a formal valuation or we can give you an estimate of a probable selling price, based on previously sold business, in your industry.
The market decides what a business is worth but the most common method used to determine the value for a business is calculating a multiple of EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization), which is a measure of a company’s ability to generate operating earnings.
The multiples vary by industry and could be in the range of one to seven times EBITDA for a small to medium-sized business, depending on market conditions and the quality of earnings. Many other factors will influence which multiple is used, including goodwill, the sustainability of earnings, intellectual property, longevity, transferability, asset values and the company’s location.
We typically seek to confirm the predictability of the business by applying other valuation approaches and calculating the value of the company’s intangible assets, discounted future earnings and what comparable businesses have sold for.
It’s part science, part art and it is designed to allow a seller to make an informed decision, with real market comparables and a defendable market assessment.
Ultimately, the marketplace will decide the real value of a business, but by preparing diligently for the transition, you will increase the odds of achieving a higher multiple.
Why does it take so long, to get to market?
In order to set expectations for a buyer, a business seller needs to provide specific business data and its not just financial statements, but an understanding of operations, management, market value, the companies structure and story. Who you are, your competitors and why they should buy from you. It allows a buyer to see your current operation and then look into the future and see themselves, as the new beneficial owner.
The Confidential Information Memorandum digs deep into a business and it takes time, about 3-6 weeks, but it will generate more interest from buyers, bring more offers and better offers, add value to your enterprise and put more money in your jeans.
The Deal Book also brings speed to a deal, by collecting all the necessary data for the Due Diligence process in advance. This means the Due Diligence can start, as soon as an offer is accepted. A secure Data Room is essential.
Another advantage of being so thorough with the pre-Due Diligence process is that it can highlight problems within your business that a buyer will repel. Many a misstep in Book-keeping, Accounting, Corporate Recordkeeping, Tax structuring could have been discovered, with some transition planning prior to a good buyer, walking away, for something that was avoidable.
It also allows Buyers to make a quicker decision and want to investigate further, which leads to faster formal offers.
How can I massively improve the value of my business?
- The first step is to find the proper professional support and build a strategy towards your business exit.
- Knowing what you want after the sale of your company and having an open mindset are extremely important
- Increase your operational efficiency (boost sales, decrease expenses)
- Get your debt to equity ratio as low as possible min 2:1 – service your debt
- Remove inactive assets (90% + 50% at closing) and plan for Capital Gains Exemption if eligible
- Reduce owner and family dependency within the daily operations, get your management to step up to their highest capabilities, cross-train, build retention systems and plan your employee agreements or understand severance
- Reduce customer and supplier concentration, build in redundancies
- Develop thorough Standard Operating Procedures, KPIs and training procedures
- Increase your customer satisfaction and employee systems
- Improve your cash flow (extend AP and reduce AR)
- Develop recurring revenue streams – work on your customer agreements
- Look at your Sustainability, Predictability and Transferability all through the lens of a buyer who knows nothing about your business
While not all these are possible in every business, each process moves the needle a little higher in business value and ultimately a higher selling price.
I’m concerned about my staff and customers will find out about the sale. How do you maintain confidentiality?
We understand that confidentiality is a huge concern for any business owner contemplating selling their company. To protect your company’s identity throughout the sale process, we only communicate sensitive information to potential buyers once they have signed a Non-disclosure and Non-interference agreement and provided a Buyer Profile showing their current financial capabilities and intent.
The potential buyer will then have access to the business overview and basic financial information. If they move to the next stage, with an accepted letter of intent or direct offer to purchase, they will enter into due diligence and further information will be released. Only upon closing the deal and the exchange of funds, will the complete business information be passed over.
Who is buying businesses?
Depending on the nature of your business and the size of the transaction, potential buyers can come from anywhere; we approach strategic buyers looking for integration, technology or territory, financial buyers looking for ROI and add-ons, roll-ups, private equity groups, wealthy individuals, immigrant investors, industry buyers and business buyers from within our database and through our network of professional industry experts.
Online through the dedicated business buyer network (150+ websites), BCs largest commercial real estate listing sites and a direct marketing campaign to our local buyer pool, that seems to grow daily.
How long does it take to sell a business?
It depends on the business, but the average time to sell a business in Canada is six to 12 months. Typically eight months.
Buyer demand, economic and lending conditions and the ability to create a competitive environment will affect the timing, but it is a long and somewhat complicated process and should not be rushed.
How the business is priced will be a major factor and how prepared the business, the owner and the documentation is.
The industry, business size, quality of management and earnings will all play a defined role in how long it will take to sell the business.
How does the selling process work?
It is a team effort involving multiple parties (probably your spouse and advisors) including your accountant, a transaction lawyer, insurance agents, landlords, other brokers etc. and on the buyer’s side, their whole team of advisors. And us, right there to guide you through the process.
After our initial conversation and meeting, we prepare a detailed business analysis to determine the Most Probable Selling Price (MPSP). We also help you prepare the business for sale, by examining operational processes and any suggested changes that would immediately impact and benefit your business value.
Strategic planning is an important part of the process as we look for the most effective ways to ensure your tax liabilities are at a minimum after closing, your staff are taken care of, and your business interests are protected throughout the process.
We prepare customised sales literature that is designed to address what business buyers and lenders are looking for. We research and identify prospective buyers and market the business confidentially across a broad range of channels to appeal to the widest buyer base. We also screen buyers to ensure they have the financial capacity, that they maintain confidentiality and are a good fit within your buyer expectations.
We then meet with buyers, assist with letters of intent, chair meetings, support the due diligence process and negotiations in conjunction with your chosen legal and accounting professionals.
We are the conduit through which everything flows to culminate in a secure purchase and sales agreement.
We are there alongside our clients from the first meeting to the closing table, and sometimes beyond.
What documents are needed to start a value assessment?
To get started we need either Notice to Reader, Review Engagements or Audited Financial Statements (profit and loss statements, balance sheets, etc) for at least the previous three to five years, interim statements for the current year, an accurate value of the current inventory. A current list of assets, furniture, fixtures, equipment, vehicles, etc with an estimated replacement value of each asset.
We have online tools that capture this data and store it securely and ensure its kept confidential at all times. We then move into an investigative stage where the seller has an opportunity to explain all the operations, benefits and nuances of the business.