According to a survey conducted by the Canadian Federation of Independent Business in May 2018, nearly three quarters of Canadian business owners plan to exit their business within the next 10 years.  This is a staggering statistic and should provide all business owners the impetus to think more strategically about their future business goals and objectives. [1]

If you are a business owner and you are reading this article right now, chances are you’ve thought about selling your business.  Just consider the evolving demographics of our country for a second – there is a massive glut of baby boomers preparing for retirement right now.  This fact alone should get you thinking.  It should therefore be no surprise that there is set to be a significant transfer of business & business assets in the coming years.

THE PROBLEM

In my experience, many business owners have a significant amount of their personal net worth wrapped up in their business.  As a result, the sale of a business can be one of the most important transactions that an individual business person will make in their entire lives.  As such, it is crucial to understand these 4 key steps to maximize the saleable value of your business.

#1 - PROCESS OVER KEY PEOPLE

Most businesses have a tendency of relying on the contributions of one or two key people for its overall success.  Take a step back and ask yourself, “Does this sound like my business?”  If it is, your business may be exposed to a number of risks.  And without proper action, your business may not be able to command top dollar in the event of a sale.

Typically speaking, a buyer wants to buy a business with all the important elements in place needed to successfully run the business whether the business owner shows up or not.  If your business is reliant solely on “key people” or one key person, consider making a shift towards process over key people.  This will ensure that no matter what happens to the people within your business (sickness, death, leave of absence or retirement) there are strong processes in place to ensure the continued success of the business.  And by doing this, you will increase the likelihood that your business can command top dollar in the event of a sale.

#2 -  NICHE BUSINESSES

Does your business operate and cater to a unique segment of the market or are you simply operating a commodity business?  If your business is the latter, let’s be real; there’s not much setting your business apart for a potential buyer.  For example, if you own a landscaping business doing general bid work the way it’s always been done for years, why would I want to buy your company?  With a small bit of seed capital, as a buyer, I can make the necessary capital investments and decide to start up my own landscaping company and bid on the same projects. 

You might make the argument that you have built up a solid reputation in the community and have good will attached to your business.  This may be true, however, this is only one factor that an individual buyer should take into consideration when determining the price they’re willing to pay for your business.  When you’re not operating your business within a niche segment of a market or niche industry, you tend to lose the ability to attract a top dollar offer for your business.  This also means there are fewer barriers to entry for other businesses to compete against you.

#3 -  PREDICTABLE REVENUE STREAMS

If you can’t prove that your business can produce a predictable, recurring stream of revenue on a regular basis, you’re really going to have a difficult time attracting top dollar for your business.  If your business is not receiving top marks in this area, do you have the ability to diversify your business offerings or services to the market to build a more sustainable and predictable revenue stream over time?  Do you have the ability to prove this over a number of years?

The first thing any potential buyer is going to want to know is what does your revenue stream look like?  If they can’t understand the revenue potential of your business, they are not going to see the opportunity for them to succeed in your business.  You are going to want to provide clear evidence and financials to support why you think your business should be worth the top dollar you want to attract.  You’ll also want to have the proper systems in place to demonstrate a predictable process for hitting your revenue targets on a consistent basis.

#4 -  OVERALL BUSINESS PLAN

You’ve likely heard the saying “By failing to plan, you’re planning to fail” and the same rings true here.  Everything you do in your business should be based on a plan and if you’re succeeding by accident, it’s pretty hard to prove to a potential buyer that this success will be repeatable.

Do you have documented processes for generating sales and growth within your business?  What about a plan towards optimizing your business’ profitability?  Having the right plan or secret sauce towards the success of your business can be one of the key distinguishing factors towards attracting a top dollar for your business.

If you don’t have a plan in place, consider the first step to creating a strategic business plan for your business.  This process will help create the foundation needed for the other steps that should follow.

SOLUTION

If you’re one of the many people considering selling their business in the years to come, don’t forget that your business is likely one of the biggest assets you own.  Make sure you consider these 4 aspects of your business to ensure you don’t miss out on the opportunity of attracting a top dollar for your business.

The foregoing is for general information purposes only and is not intended to provide specific personalized advice including without limitation, financial, legal, accounting or tax advice. 

[1] https://www.cfib-fcei.ca/en/media/nearly-three-quarters-small-business-owners-plan-exit-their-business-within-next-10-years