Thursday, December 27, 2012

A Major Trend That Should Concern Business Owners

Heading into a New Year is the perfect time to reflect upon the challenges and successes of the past year and set new goals for the coming year.  Many business owners may be planning to sell their business in 2013.  Perhaps some boomers have already delayed this event, for various reasons, and are hoping 2013 will be the year they begin the transition out of their business. 
One thing is certain - all business owners will one day sell their business.  For some business owners this will occur voluntarily, on their terms at a time of their choosing.  For many business owners, however, this will occur involuntarily due to burnout, illness, disability, divorce or death.   
The Current Situation:
"According to CIBC, an estimated $1.9 trillion in business assets are poised to change hands over the next 5 years, $3.7 trillion over the next 10 years – the biggest transfer of Canadian business control on record." [1]

This transfer of wealth translates into approximately 310,000 businesses over the next 5 years and 550,000 businesses over the coming decade.
The Problem:
The increasing supply of businesses for sale over this time period will create a buyers’ market putting downward pressure on sale prices.  Without a proper plan, business owners will find themselves selling for a significant discount to those that come to market prepared. 
This is a major problem for business owners that want to maximize the price they receive in an eventual sale of their business.  As more and more businesses are put up for sale over the coming decade, buyers will only pay top dollar for the most attractive businesses.
The Solution:
Ensuring you have a business that will be attractive to potential buyers when it comes time to sell will be essential to dealing with this problem. 
Whether you are working to build a salable business or striving to maintain an already attractive business, proper planning and unwavering implementation will be vital.  Exit planning, including the implementation of value enhancement initiatives, is a process that takes time and must begin 3 to 5 years prior to an eventual sale.
Many people understand the importance of planning, but successful people excel at the implementation of an action plan (or seeking the assistance of professionals).  The VSP 6-Step Value Enhancement Process assists business owners with the development and implementation of an action plan and consists of the following steps: 
  1. Benchmark Business Valuation 
  2. Detailed Value Driver Analysis 
  3. Prioritize the Key Value Drivers 
  4. Develop Action Plan 
  5. Implement, Monitor and Follow-up 
  6. Updated Business Valuation
We take the business owner through steps 1 to 4 above within approximately 3 months.  Step 5, however, is the most critical and is where many business owners fall short without assistance.  We schedule quarterly meetings, with those held accountable for completing tasks, to ensure the successful implementation of the value enhancement action plan.
The VSP 6-Step Value Enhancement Process provides the following benefits to business owners:
  1. Increase the value and salability of the business 
  2. Stand out from the crowd as an attractive target for potential purchasers 
  3. Ensures the implementation of an action plan 
  4. Owners can continue to focus on the day-to-day operations of the business 
  5. Significant return on investment (spread over a 2 to 3 year time frame) is realized 
  6. Helps prepare the business owner in event of burnout, illness, disability, divorce or death  
As a business owner, do your plans for 2013 include value enhancement initiatives?  If you are planning to sell your business over the coming decade perhaps they should – especially in light of current statistics on the expected increasing number of businesses for sale over this time period!

1.    Source: Ottawa Citizen, November 13, 2012.

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