Lights, camera, action! Portage Founder and Partner Jim Friesen kicked off the inaugural episode of The Selling Successfully Podcast with special in-house guest, Portage Partner and Head of Valuations, Ryan Buist. Jim and Ryan candidly captured the need-to-knows and best practices for business owners regarding early planning and maximizing business valuation.
Here are the 5 key takeaways for business owners thinking about or ready to sell.
- Don’t jump the proverbial gun!
Just because a large company throws out an offer, doesn’t mean you should act on it. Emotions and the lure of a quick sale can cloud your judgment and without proper guidance or preparation, you are at risk of accepting what could be a lowball offer.
Ryan suggests practicing patience and expanding your presence at the table with knowledgeable support and accurate numbers.
- Know your worth
Once a decision to retire or consider a future sale is made, the next natural and critical step is the valuation. A common misperception worth noting is that many are hesitant to go down this path and incorrectly assume this stage involves a lot of heavy lifting. You can rest assured, this is not the case, and you can get an accurate high-level valuation without breaking the bank.
The goal of the business valuation is to get a holistic view which involves qualitative and quantitative discovery. This means getting to know the business and what makes it tick, understanding how your customer and supplier relationships function, looking at competitors and getting a feel for how you as an owner operate within the business. From there, the hard data comes into play. These are generally easy-to-answer numbers and questions. Anything regarding more specific financial statements or actions is a chat with your accountant.
In addition to these conversations, your M&A advisor should be conducting a market scan to see what businesses like this have sold for in the past as well as reaching out to bankers to ensure they would fund a deal like yours.
- Heed the statistics
It’s no secret that Canadian business owners are leaving money on the table when it comes to selling.
According to BDC, “Entrepreneurs looking to exit are slowing down too soon with 71% not willing to take risks to improve business performance and 52% have no interest in expanding their business which may cause them to sell below market value. Folks are willing to invest in their home but not their business which is often their largest asset.”
Jim and Ryan shared that the biggest hurdle here is the time commitment. Many sellers think they don’t have time to put in the extra work to grow their business or they’re simply too tired. Compounding the challenge is the reluctance to ask for help. A journey that should be exciting and rewarding then becomes one of trepidation.
Ryan underscores the importance of staying in the game, “If you’re going through the sale process, now is not the time to take your foot off the gas.”
- Early planning for the win
One of the most important factors in attaining a strong business valuation and ultimately a successful sale is early planning. Clients are advised to start the planning process three to five (even ten!) years in advance. The more lead time, the better!
A longer runway to sell provides more opportunities to grow the business and demonstrate to a buyer that the business can function without you. This is one of the biggest things that can make a business scalable and increase value. Buyers want to see smooth success without management having to be involved in the day-to-day operations.
It’s also important to note that spiking revenue in a short period of time while beneficial to you as the owner does not read the same for a potential buyer. Buyers want proof that it’s maintainable which means showing consistent financials year over year in order to warrant a price increase.
- Put yourself in the buyer’s shoes
Oftentimes a seller becomes so fixated on their own business and valuation that they forget about where the buyer is coming from, how the buyer is examining the business and factors that will impact how they secure financing.
Buyers can be anyone and everyone, ranging from large public corporations to private equity firms to young entrepreneurs. You need to get into their mindset and think about all of those drivers and questions and then act accordingly to put your best foot forward and make your business attractive to those buyers.
Conclusion
The decision to sell should act as a catalyst to get your business in the best shape possible. If you can keep reinvesting in your business, continue to pursue growth and make yourself stand out from the crowd, you will put your business in a strong position for sale.
For a deeper dive on selling successfully, listen to the full podcast here https://portagemaadvisory.com/podcast-page/ or to learn more about business valuations, contact Ryan Buist at ryan.buist@portagemaadvisory.com
