Saturday, September 21, 2013

Take a Vacation to Increase the Value of Your Business

Building a business can be very demanding and extremely time consuming.  You may be accustomed to working long hours and overseeing all aspects of your company’s operations.  However, if you want to build a business for a successful transition you may have to work smarter and not necessarily harder.
According to the researchers at the "Sellability Score", companies that operate smoothly without their owner for a period of three months are 50 percent more likely to get an offer to be acquired when compared to more owner-dependent businesses. [1]
This was not surprising to me as a business valuator given that a key value driver for most businesses is economic dependence, in particular dependence on the company’s owner.  Owner dependence will be a major area of investigation for potential buyers as they will want assurance that your customers, suppliers and employee/management team will remain with the company after the owner is gone.
There is no better reason for taking an uninterrupted vacation than to see how your company performs without you.  The better your company runs without you, the more valuable it will be when you’re ready to sell.
In order to assess your company’s ability to handle your absence, you should start by taking a short vacation, leaving your computer at home and turning on the out-of-office notification.  Upon your return, you may find that your employees got resourceful and found answers to a lot of the questions they would have asked you if you had been available.  If that happens, that’s a good thing, and a sign you should start planning an even longer vacation.
There is no doubt that you will also come back to an inbox full of issues that need your personal attention.  Instead of busily addressing each problem in a feverish attempt to clean out your inbox, you should slow down and look at each issue through the lens of a possible problem with your: i) people; ii) systems; or iii) authorizations. 
1.  People

Start with your people and answer the following questions:
  • Why did this issue end up on my desk?
  • Who else is qualified to answer this question and why was that person not consulted?
  • If nobody else is qualified, who can be trained to answer this question in the future?

2.  Systems

Take a look at your systems and procedures.  Could the issue have been dealt with if you had a system or a set of rules in place?  The best systems are hardwired and do not require human interpretation.  However, if you are not able to create a technical fix, then at least give employees a set of rules to follow in the future.

3.  Authorizations

You may be a bottleneck in your own company if you alone control the spending.  Employees may know what to do but are simply not authorized to address the issue.  You need to give this more thought. Here are some things to consider:
  • Put a customer service rule in place that gives your front line staff the authority to make a customer happy in any way they see fit provided it could be done for under $100;
  • Authorize certain employees to spend a pre-determined amount with a specific supplier each month without coming to you first; or
  • Give certain employees an annual budget, an amount they can spend without seeking your approval.
Given the fires that may need to be extinguished after the fact, taking a holiday may seem more of a hassle than it’s worth.  But if you transform the aftermath of a vacation into systems and training that allow employees to act on their own, you will find the vacation is worth what you paid for it many times over: your business will increase in value as it becomes less dependent on you personally.
For more information about enhancing the value of your business or to learn more about our VSP Exit Starter Program, contact us at
[1] The Sellability Score is an online questionnaire that allows a business owner to assess the "sellability" of the company. If this is of interest, you can find out your company’s Sellability Score:


Thursday, September 12, 2013

Why Your Exit Planning Team Needs a Business Valuator

An independent business valuation is critical to your exit planning for many reasons.  After identifying your goals and determining your financial needs, a current business valuation is the next step in the exit planning process ( 

Other independent sources also recognize the importance of a business valuation in exit planning:
"At present, being able to measure the value of the business is a critical aspect of the business succession plan."
CFIB Research, November 2012
"It is important to get a professional business valuation, since owners may grossly overestimate or underestimate the value of their business."
RBC Business Succession Planning: Your Essential Roadmap

We are on the cusp of something unprecedented.  $3.7 trillion in business wealth in Canada (or 550,000 businesses) is expected to change hands over the coming decade.  Now, more than ever, business owners need to be prepared for the eventual exit from their business.  Not being prepared will have serious consequences.  With the increasing supply of businesses for sale over this period, business owners (and businesses) that are not adequately prepared will end up selling for a significant discount or face liquidation.
Exit planning is about regaining control over how and when you exit your business and being prepared for an unplanned exit due to disability, divorce, departure or death.  It is never too early to begin your exit planning.  It is, after all, a process that takes time and requires the involvement of various experts with specialized expertise at different stages of the process. 
Here are 4 reasons why you need a business valuation professional on your exit planning advisor team:
  1. Enhance Your Business Value – A valuation provides a benchmark from which to measure value enhancement. The valuation process helps identify a business’ key value drivers. Documenting the increase in value over time will increase the business’ attractiveness, which will help maximize the price a purchaser will be willing to pay;
  2. Manage Your Wealth – Your business may represent a significant portion of your family’s wealth. You cannot manage and protect your wealth without knowing the value of your assets, including your business. A valuation also prepares you for an unsolicited offer or necessary tax and estate planning (e.g. estate freeze, share reorganization, family trust, etc.);
  3. Prevent Costly Legal Disputes – Shareholder and matrimonial disputes can be costly, time consuming and emotionally draining. The value of the business is often a key issue in these disputes. An independent valuation allows shareholders and spouses to discuss and agree on the value of the business before any potential disputes arise; and
  4. Manage Value Expectations – An experienced, professional business valuator can help you manage your expectations regarding the value of your business. This is critical for getting a deal done regardless of whether the sale is to an external third party, another shareholder, a management/employee group or a family member.

Not involving a business valuator early in the exit planning process can have serious consequences. I was jointly retained in a shareholder buyout that quickly developed into a legal dispute over the value of the business. Significant professional fees were incurred as each side retained legal counsel and three other professional valuators became involved. The shareholders could have benefited from an independent valuation earlier in the process to ensure they were on the same page regarding value. By the time I was retained the buyer and seller value expectations were widely divergent - a dispute was almost inevitable. 

Don’t let this happen to you. Start your exit planning early and get a professional business valuation to help manage your wealth and value expectations, enhance the value of your business and avoid costly legal disputes.

Your accountant may or may not be qualified to provide a professional business valuation. It may be worthwhile to find a valuator with exit planning credentials. When you interview prospective business valuators, here are some questions to ask before making your selection:
  • History - how long have you been valuing businesses?
  • Experience - how many businesses have you valued and in which industries?
  • Testimonials - do you have any testimonials or references?
  • Process – what is your process for valuing a business and assisting with the exit planning?
  • Reporting – what are the reporting options?

For more information about working with a business valuator or to learn more about our VSP Exit Starter Program, contact us at

Monday, September 02, 2013

Contemplating an External Sale? Do Not Proceed Without an M&A Professional!

A seasoned M&A professional with experience selling similar businesses can help with positioning your business for sale, finding potential buyers, managing the entire sale process and representing you in negotiations with potential buyers.
I recently sat down with Don Hilton, Founder and Managing Partner, of Distinct Capital Partners Inc. ( in Toronto, Ontario.  Distinct Capital provides investment banking, corporate finance and advisory services to shareholders of owner operated businesses with revenues between $5M to $100M.  Don has over 30 years of experience in investment banking with several Canadian investment dealers and has worked closely with business owners to assist them through the sale process.

I wanted to understand what a business owner should expect when working with an M&A professional throughout the sale process.  According to Don, 4 key issues in this regard include:
  1. Begin With Goals and Options – to properly represent, assist and advise you, the M&A professional must understand your goals (e.g. maximize price, leave legacy, etc.) and explore the exit options (e.g. strategic buyers, financial buyers, entrepreneurs, management, etc.) with you.  In addition, do you want an immediate exit or will you consider staying on under an employment contract to assist in the transition;
  3. A Time Consuming Process – the sale process is a time consuming process that can take 6 to 9 months from beginning to end and you need to stay focused on your business during this time.  The M&A professional can take on many tasks (e.g. prepare the teaser document, offer memorandum, buyer search, etc.) and ensure your involvement only when required (e.g. management presentations, Q&A, negotiating table, etc.);
  5. The Man in the Middle – many business owners have never been through the sale process.  The M&A professional has experience and is your representative at the negotiating table to deal with other professional advisors involved in due diligence and issues such as deal price and structure.  The M&A professional is skillful at negotiation, not emotionally involved in the business and will not take things personally, thereby increasing the odds of getting a deal done; and
  7. Getting the Deal Done – the M&A professional’s sole function is to sell the business.  As a result, there is a much better chance that a deal will be closed in less time.  The M&A professional is motivated to complete a transaction as he/she is generally paid when you get paid and a good broker can and should be able to sell your business for a higher price than you could on your own.
Don generally gets involved in the exit planning process once the business owner has decided to embark on the sale process.  He routinely works closely with other professional advisors including the business owner’s accountant, lawyer, tax specialist and business valuator.
Not relying on an M&A professional to assist in the sale of your business can have serious consequences.  A few years ago, one of Don’s prospects decided he was better suited to sell his own business (after learning that Don’s assessment of business value was lower than his).  Although the business owner did find a prospective buyer, he was ultimately not as skilled as he thought.  The deal fell apart after one year of intense due diligence and time consuming negotiations.  Much time, effort and money was wasted.  The value of the business also suffered because the owner was not entirely focused on managing the business over this period of time. 
Don’t let this happen to you.  When it comes to selling your business, finding the right buyer can be daunting and very time consuming if you try to do it yourself.  A seasoned M&A professional understands the market, has a network of potential buyers and can weed out the "tire kickers" from the serious buyers with sufficient financial resources.  When you interview prospective advisors, here are some questions to ask before making your selection:
  • History - how long have you been selling businesses?
  • Experience - how many businesses have you sold and in which industries?
  • Testimonials - do you have any testimonials?
  • Process - how do you find, locate and qualify buyers?
  • Success rate - what is your closing ratio?
For more information about working with an M&A professional to help market and sell your business, contact Don at  If you have any questions regarding the exit planning process in general or want to learn more about our VSP Exit Starter Program, contact us at