Sunday, November 23, 2014

Want to be More Valuable Than Your Industry Peers?

The value of your company is dependent upon many things, including your industry.  When we look at businesses within the same industry, there are major variations in valuation.  Here are 10 things that will make your company more valuable than its industry peer group. 

1. Recurring Revenue
The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer.  Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors.

2. Satisfied Customers
Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.

3. Diversification
Acquirers will pay a premium for companies that naturally hedge the loss of a single customer.  Ensure no customer amounts for more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.

4. Growth
Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your overall industry. 

5. Predictability
If you have mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who does not have a clue where their next customer will come from.

6. A Management Team
Companies with a management team or second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.

7. Something Unique
Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry.

8. Location
If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you will have buyers willing to pay a premium for you business in its location.

9. Media Hype
Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry.  If you are the darling of your industry trade media, expect to get a premium acquisition offer.   

10. Clean Books
Companies that invest in audited statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more.  You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.

Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.

Sunday, September 28, 2014

5 Ways to Increase Your Odds of Receiving an Unsolicited Offer

In any negotiation, being the person who makes the first move usually puts you at a slight disadvantage.  The first-mover tips their hand and reveals just how much he/she wants the asset being negotiated.

Likewise, when considering the sale of your business, it is always nice to be courted, rather than being the one doing the courting.  The good news is, the chances of getting an unsolicited offer from someone wanting to buy your business are actually increasing. 

According to the Q2, 2014 Sellability Tracker analysis released in July 2014, 16% of business owners have received an offer in the last year, which is up 37% over Q1.  Said another way, you’re 37% more likely to get an offer to buy your business today than you were at the beginning of the year.

Big companies are buying little ones for a lot of reasons and the current market conditions are accelerating their appetite: interest rates are low and stock markets are high, which provide the ideal platform for acquirers to realize a return on their investment from buying a business like yours. 

So how do you ensure you are on their shopping list?  Here are five ways to get noticed by an acquirer:

1. Win an award

Getting recognized as the “Widget Maker of the Year” by the Widget Makers Association is a great way to get the attention of acquirers in your industry.

2. Hire a PR person

Engaging a public relations professional to tell your story to the media can get you on the radar of buyers in your industry.  A lot of media relations professionals focus on the big mainstream publications, and while these are important, ensure that your PR firm also targets trade publication and industry-specific websites that are read by acquirers in your industry.

3. Host an event

Consider hosting an event (e.g., conference, tradeshow, summit) for your industry and invite representatives from potential acquirers to attend.  Being invited to an industry event can be flattering for acquirers and it is a good way to get them to notice you as an industry leader.

4. Join a board

If an executive from a company you think would make a natural buyer for your business is serving on a board of directors, consider joining the board.  Serving on a board together can be a great way for an acquirer to notice you and your company without you having to say you’re for sale.

5. Grab lunch

Consider inviting a senior executive from a potential acquirer to share a meal under the guise of discussing trends in your industry.  At the very least, you may glean some useful information about how big companies are seeing your industry evolve.  At best, your lunch mate may realize that your company could play a key role in helping them grow.

The sale of your business is a delicate dance where it is usually better to be the courted, rather than the courter.  Acquirers are on the hunt for new businesses, and having them notice you will put you in a position of strength when you get to sit down at the negotiation table.

Friday, September 12, 2014

Breaking Down Barriers

Are you passing your business on to the next generation?  Will you be selling to management or an employee group over time?  Would you like to maximize your net proceeds on a sale to an independent third party buyer?

Whether you plan on selling your business to an internal party over time or to an external third party for maximum proceeds, your success depends on how much effort you put into your planning and preparation.

Getting started is often the hardest part.  We learned from Newton that, “An object at rest stays at rest and an object in motion stays in motion….”  Excuses are your biggest roadblock to getting started.  It’s too early for me…  I’m too busy...  It’s too complicated…  It’s too expensive... and so on.

What’s really behind these excuses?  Understanding this may be just what you need to set in motion something that will “stay in motion” until your goals are achieved.  

Here are some tips for overcoming the most common excuses that are preventing you from getting started:
  1. Your mind - Your mind can be your main ally when it comes to achieving your goals.  If, however, your mind is not programmed for success, it will do more to derail your efforts than to help you.  Visualize where you want to be after you exit your business and how it will feel when you get there.  This will give you the motivation to act.
  2. Your fear - Change makes most of us nervous – even if it is a change in the right direction.  You may not be consciously aware of the fear you have over leaving your business.  Until you conquer this fear, your exit planning efforts will be blocked by self sabotage and procrastination.  Tackle your fears by believing that something must change, that you must change it and that you can change it.
  3. Your commitment - We live in a commitment-phobic world, so it's no wonder that people routinely abandon their goals.  If you truly want to achieve your goals when you exit your business then your commitment to the process is critical.  The margin between success and failure is bridged by your commitment.  Don't give up until your goals have been achieved.  If you don't give up, then you'll never fail.  There are two options in life, excuses or results.  Which do you want?  
  4. Your patience – Exit planning takes time and there are a number of issues to address.  It took time to build your business and it will take time to exit the business – that is if you want to exit on your terms.  When you find your patience wavering, review your goals - are they specific, measurable, realistic and attainable?  Remember, slow and steady wins the race.  You will be surprised with how much can be accomplished within a three year period after 12 quarterly meetings!
  5. Your support network – Taking on this task alone will leave you less challenged, less accountable and more likely to fail.  There are many helpful resources out there.  Reach out to experts to assist you through the process.  Do some research and speak with colleagues and/or other business owners that have been through the process successfully.  Surround yourself with positive and supportive people.  Look for a professional advisor with exit planning credentials and experience to guide you through the process and involve the specialists where and when needed.
Contact us at or to help you kick-start the exit planning process.  We can help you set your exit plan in motion and assist you with the implementation to ensure you exit on your terms at a time of your choosing.

1.  Inspired by Daryl Devonish, Co-Owner, Body Pump Inc. ( 

Monday, September 01, 2014

Will Your Goals Be Thwarted by These Excuses?

All business owners exit their business eventually.  Planning is critical if you want to ensure a successful transfer of your business - whether that transfer be internal (i.e. to another shareholder, a management group or the next generation) or external (i.e. to an independent third party).

According to a recent CFIB study, less than 10% of business owners have a formal written plan, 40% have an informal plan and over 50% have no plan whatsoever. [1]  Why have so many business owners avoided planning their exit?  

Does this include you and, if so, what is holding you back?  Here are the top 5 excuses that prevent business owners from beginning their exit planning:

Excuse #1: It’s too early for me to plan for succession

Fact: It is never too early.  Planning should begin at least 3 to 5 years prior to exit because there are many issues that require time to adequately address.  Identifying your exit option early (e.g. internal or external) is extremely important.  Identifying how much you will need financially when you exit is critical.  Allowing sufficient time to enhance the value of your business and ensure proper tax plans and structures are in place to minimize tax on the transfer before exit is also vital.  Beginning your planning early could mean the difference between success and failure.  

Excuse #2: I’m too busy 

Fact: You are never too busy to do that which is important - it’s a matter of prioritization.  If ensuring a successful transition to the next generation or maximizing your net proceeds on the sale to a third party is important to you then you will make time for the planning that is necessary to ensure these goals are achieved.  If you are truly serious about meeting your transition goals and understand the importance of planning then you will make it a priority.   

Excuse #3: It’s too complicated and I don’t know where to begin 

Fact: It can be complicated but that has not stopped others from starting their exit planning.  There are many helpful resources out there.  Reach out to experts to assist you through the process.  Do some research and speak with colleagues and/or other business owners that have been through the process successfully.  Surround yourself with positive and supportive people.  Look for a professional advisor with exit planning credentials and experience to guide you through the process and involve the specialists where and when needed. 

Excuse #4:  It’s too expensive

Fact: Exit planning is an investment that should form part of your “wealth management” budget.  You pay professionals to “manage” your portfolio of publicly traded securities.  According to The One Percent Solution, privately held business owners should invest 1% to 2% of the value of their business each year on exit planning initiatives (e.g. business valuation, value enhancement initiatives, life insurance, tax and estate planning, etc.) [2]  This investment will pay off in the form of a higher business value (or price received) and less taxes paid, resulting in more money in your pocket - not to mention the decrease in stress knowing that your affairs are in order.  

Excuse #5 – I don’t want to think about leaving my business

Fact: You may not want to think about leaving your business but you will leave your business one day.  The departure from your business will be voluntary at at time of your choosing or it will be involuntary as a result of your death, disability, disaster, divorce or disagreement.  Would you rather exit your business on your terms or have your family deal with your unexpected forced exit?  Who will run the business?  Will it be salable?  Will it be dissolved?  Will there be taxes to pay?  Start planning now so you can choose while you still have the control to make a choice.     

If you would like to sell your business within the next 5 years, you have a tremendous opportunity to sell for a significant premium - provided you conduct the proper planning!  Those business owners that ignore planning could end up selling for a significant discount or face liquidation altogether.

Are you part of the 50% of business owners that have no plan whatsoever?  If so, what is holding you back?  Join me next time when we address how to overcome what is holding you back.

1. Source: CFIB Research Report November 2012 “Passing on the Business to the Next Generation”
2. Source: The One Percent Solution, Z. Christopher Mercer, 2007.

Monday, July 28, 2014

6 Ways to Profit From Your Vacation

Summer may be the perfect time to increase the value of your company.  The most valuable businesses are the ones that can survive without their owner.  A buyer will pay a premium for a company that can operate effectively without the owner’s presence and likely require a steep discount for a business that is dependent on its owner. 

This summer, consider taking an extended break from your business to see how things will run when you are not around.  It is likely that some things will go wrong, but use those errors as feedback for making your business operate more independently of you, and therefore more valuable.  

Here is a six-step plan for profiting from your vacation time this summer:

Step 1: Schedule your vacation plus one day

Whatever day you plan to start working again after your holiday, tell your staff you’ll be back one day later.  That way, you’ll have a full day of uninterrupted time to dedicate to understanding what went wrong in your absence.

Step 2: Log the mistakes

When you return, make a summary of the things that went wrong and categorize them into one of three buckets:
  • Mistakes: errors where there is a right and wrong answer;
  • Bottlenecks: projects that had difficulties because you weren’t there to provide your feedback;
  • Stalled projects: initiatives that went nowhere while you were gone because you’re the person leading them.

Step 3: Correct the mistakes

The first and easiest place to start is to simply correct the mistakes that were made.  Usually mistakes are due to a lack of training rather than outright negligence.  The right answer may be crystal clear in your head but not immediately obvious to your staff.  Write up some instructions for next time the employees face the same situation.  Make sure your instructions are clear, and share them with your team so everyone has them.

Step 4: Unblock your bottlenecks

If you are being asked for your personal input on projects, there’s probably going to be a bottleneck if you are not around.  Make sure your staff is clear on the projects where you need to have a say and the projects where you don’t.  Some employees may wrongly think that you need to approve all decisions.  Make it clear when you want them to act alone and when you still need to be involved.

Step 5:  Re-assign stalled projects

The hardest part of making your business less dependent on you is dealing with projects that get stalled when you are away.  Start by asking yourself if you are the right person to lead the project in the first place.  As the owner of your business, projects often fall in your lap by default, rather than because you are the best person to lead them.  Categorize your stalled projects into two groups: a) strategic projects that you need to lead; and b) non-strategic projects you are leading by default.  Hang on to the strategic projects, but delegate the non-strategic projects to someone on your team who is better suited to drive them forward. 

Step 6: Give your employees authorization

At Ritz Carlton Hotels, every employee has discretion to spend up to $2,000 on a guest, without approval from their general manager.  The $2,000 figure is a large enough number to make the message clear: front line employees should act first, make the customer happy, and ask questions later.  Many employees know how to make a customer happy but lack the confidence to act.  Giving employees some spending authority will speed up the resolution of customer issues and empower your team to do the right thing when you’re not there. 

The sunshine is beckoning, so go ahead and take a vacation – if you follow the six steps here, you may end up with a tan and a more valuable company. 

Sunday, July 13, 2014

Estate Executors – How to Increase Your Protection and Minimize Your Risk

The executor of an estate with business interests should obtain an independent professional business valuation as support for the values used in the estate administration tax (“EAT”) filing, particularly in light of recent changes to EAT legislation and the potential for personal executor liability.

At the time of probating the will, EAT (previously known as “probate fees”) of 0.5% must be paid on the first $50,000 of estate assets and 1.5% on the value of the remaining assets. [1]  The estate representative (i.e. executor or trustee) has many responsibilities, including:
  1. Filing an affidavit as to the estimated value of the estate; 
  2. Remitting the EAT on the estimated value; and 
  3. Providing an undertaking to file, within six months, a sworn statement of the total value of the estate, and to pay the balance of any additional tax owing (if any).

In 2011, the Ontario government amended the legislation to enhance the EAT compliance regime.  Beginning January 1, 2013, the Ontario Minister of Revenue will be afforded significant audit and verification functions including the right to conduct a review of the estate inventory and valuation provided by the executor.  If a greater estate value is determined, additional taxes can be assessed.  As a result, there will be much more pressure to verify the value of the assets disclosed in the EAT filing.

Penalties have been added to encourage compliance.  It will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue.  It will also be an offence for any person who makes, or assists in making, a false or misleading statement in connection with the estate trustee’s filing.  Offences are punishable by fine, by imprisonment or both.  The minimum fine will be $1,000.  The maximum fine will be twice the EAT payable.

An estate representative may be exposed to personal liability if the estate assets have been distributed before the Minister of Revenue issues a notice of assessment.  There is no ability to obtain a “clearance certificate” to protect the estate representative from personal liability.

In light of the responsibilities of the estate representative, the new audit measures, and the potential for personal liability, it will be critical for executors to be diligent in obtaining and documenting proper and accurate valuations of the deceased’s property for purposes of calculating the EAT.  Where the estate holds shares in privately held businesses, the benefits of obtaining an independent business valuation will far outweigh the costs to the estate and the risk to the executor of not having one prepared.

Contact us at or for an independent business valuation if you want to minimize your risk and increase your protection as an estate executor.

[1]  source:

Thursday, July 03, 2014

Business Valuations to Support Life Insurance Coverage

We were recently contacted by the Inspection Department of an independent service provider to the Canadian life and health insurance industry with respect to one of our clients.  They were gathering information to assist in the underwriting process and wanted independent evidence supporting the client’s claim as to the value of the business as part of their inspection process.  Our client asked us to provide a copy of the independent business valuation we had prepared for purposes of their estate planning and life insurance.  

We have been providing independent business valuations to help business owners determine an appropriate amount of coverage for many years.  This was the first time, however, that we were contacted by a representative of the insurance company.  It may be that independent business valuations are becoming a more formal part of the underwriting process.

Life insurance is often used for income replacement or to alleviate the burden of estate and probate taxes upon death.  However, when business owners use life insurance to fund a buyout or redemption of the shares of a deceased shareholder it is important to ensure that the death benefit will be adequate to:
  1. Fund the buyout or redemption of the deceased shareholder’s shares (Buy/Sell Insurance); and
  2. Ensure the continued survival of the business upon the loss of what may be a key person in the business (Key Person Insurance).

As a result, the life insurance coverage should at least cover the current value of the business and many business owners grossly overestimate or underestimate the value of their business.  An independent business valuation provides business owners with third party evidence for ensuring adequate life insurance coverage.  This in turn provides the shareholders with peace of mind that their families and their businesses are sufficiently protected.  

An independent business valuation is also helpful to the insurance advisor as it will help:
  1. Manage and control the process in creating the application file - insurance companies and their risk advisors are increasingly requiring support for the amount of coverage requested; and
  2. Solidify trust and cultivate the relationship with the client - providing the insured with third party evidence regarding the value of their business eliminates any pre-conceived notions the client may have with respect to being over sold or under estimated as far as coverage.  

The business valuation should also be updated periodically as the adequacy of the life insurance coverage should be reviewed in light of any growth or other changes to the business over the prior years.  Ideally, this process should be agreed to and formalized in the company’s shareholders agreement, which for many business owners, may not exist or may not have been updated for many years.

Life insurance is an integral part of estate and contingency planning for business owners.  If you are in the process of obtaining life insurance or reviewing your current coverage, contact us at or to assist with your business valuation needs.

Thursday, June 26, 2014

Supporting Valuations in Tax and Estate Planning

30% to 40% of business owners are planning to transfer their business internally to another shareholder, management, employees or family member. [1]  One option for those planning to transfer the business to the next generation over time is through an estate freeze.

In an estate freeze the business owner’s common shares are exchanged for preferred shares of equal value to the common shares.  New common shares are then issued by the company to the next generation family members.  This allows the business owner to “freeze” his/her unrealized gain in the corporation on a tax-deferred basis, with any future growth in value of the company accruing to the children.  As a result, the business owner can estimate and plan for the future tax liability, perhaps with life insurance.

Under an estate freeze the fair market value of the common shares must be established.  According to the CRA, the fair market value must be determined “by a fair and reasonable method”. [2]  If not, CRA will likely challenge the validity of the transaction alleging that a benefit had been received by a shareholder who acquired property from a corporation at less than fair market value.

In the event of a potential dispute with the CRA, price adjustment clauses (PACs) are sometimes used to retroactively adjust the fair market value to avoid the “conferral of benefit” problem.  Unfortunately, a PAC may not help if a fair and reasonable valuation attempt was not initially conducted.  

In Guilder News Co. (1963) Ltd. et. al. v. M.N.R., 73 DTC 5048 (FCA), the Court rejected the PAC as a basis for adjusting the price and eliminating the benefit on the grounds that the parties had not reasonably attempted in good faith to transact at fair market value.  Other recent case law involving PACs include St. Michael Trust Corp. v. Canada (2010 FCA 309, affirming Garron, 2009 TCC 450) and Krauss v. Canada (2010 FCA 284, affirming 2009 TCC 597).  Potential implications of not having a fair and reasonable valuation to the business owner include additional taxes, interest and penalties.

An independent valuation prepared by a qualified business valuator can provide a fair and reasonable basis for the fair market value used in an estate freeze, essentially acting as insurance for potential disputes with the CRA.  Inadequate fair market value assessments can give rise to unfortunate tax consequences as well as costly and time-consuming litigation, not only with the CRA but also with the advisors. 

Other tax and estate planning mechanisms involving the transfer of assets or shares to a related party could include business incorporations, corporate restructuring, share reorganizations or family trusts.  In order to take advantage of tax deferrals, these transfers typically must occur at fair market value.  You will be well served and protected by involving and retaining an independent business valuator to assist you with the fair market value determinations.

If you are considering an internal transfer, contact us at or to assist with your business valuation needs.

1.  Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).
2.  Source: CRA’s Interpretation Bulletin IT-169.

Thursday, June 19, 2014

Business Valuation Helps Facilitate an Internal Transfer of a Business

According to recent studies on the business succession market in Canada, between approximately 30% and 40% of business owners surveyed are expecting to transfer their business internally to other shareholders, management, employees or a family member.

If you are planning to one day sell your business to an internal party, an independent business valuation can be very beneficial for managing value expectations and ultimately facilitating the transfer of the business at a fair and reasonable price.

It is extremely important for all parties involved in an internal transfer to agree on the current fair market value of the business, to ensure a smooth ownership transfer.  The current fair market value can be used to set the price for the transaction in situations where the purchaser acquires the departing shareholder’s shares or situations involving share redemptions by the company.

In his best-selling book on protecting family wealth, “Every Family’s Business”, Tom Deans suggests that all business owners should arrange for an updated annual valuation of the business.  One of the 12 steps in Tom’s annual checklist for family businesses (referred to as the Wealth Protection Blueprint) states that business owners should:

“… arrange for an updated valuation of the business and calculate whether there is appropriate insurance in place to ensure that estate taxes will not impair the ability of the company to function in the event of the owner’s death.”

Tom then discusses the implications of not obtaining a valuation prior to an internal transfer.  There can be serious repercussions to the business and to family members if the company is transferred to the next generation for an amount that is less than or greater than the actual fair market value of the business, particularly when the transaction was financed with debt.

An independent business valuation will help set a reasonable price, one that is fair to all parties, to facilitate the transfer of all or a portion of the equity to other shareholders, management, employees or a family member.  Having an independent expert business valuator explain the valuation process, approach and assumptions will help ensure that all parties are satisfied that a fair and reasonable deal was struck.

The business valuation can also be used for contingency planning to help protect the business and the business owner’s family in the event of an unplanned involuntary transfer due to death, disability, divorce, distress or disagreement.

If you are considering an internal transfer, contact us at or to assist with your business valuation needs.

1.  Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).

Thursday, May 29, 2014

6 Ways a Business Valuation Prepares You for an External Sale

According to studies on business succession in Canada, more than one third of those surveyed are expecting to sell their business externally to a third party. [1]
"We should remember that good fortune often happens when opportunity meets with preparation."
― Thomas A. Edison

Business owners looking to sell their business to an external third party should take note.  There is tremendous opportunity to sell for a significant premium because many business owners are not properly preparing.  The preparation for this begins with a business valuation and solid value enhancement plan.  The good fortune comes in the form of a sale of the business for the maximum possible price.
For many business owners the sale of their business is a once in a lifetime event and, without proper education, many will either grossly overestimate or underestimate the value of their business.  If you plan to sell your business to an external party one day, obtaining an independent business valuation is an investment that will pay for itself many times over.  Here are 6 reasons why:

1. An independent valuation helps to manage the business owner’s pricing expectations which increases the likelihood of getting a deal done;

2. A professional valuation helps to justify the asking price and provides support for negotiating the price with a potential purchaser;

3. An independent valuation prepares the business owner for any unsolicited offers received from competitors or other industry participants;

4. The valuation process can help identify potential purchasers or purchaser categories;

5. The valuation process educates the business owner regarding “stand-alone value” and “synergistic value” and the notion that strategic purchasers are often willing to pay more than “stand-alone value”; and

6. A valuation ultimately helps the business owner maximize the sale price, ensuring no money is left on the table.

Many business owners looking to sell their businesses will not take advantage of opportunities in the current marketplace through proper planning, including a professional business valuation.  On the other hand, those that are prepared with a professional valuation and keen sense of market timing will vastly increase their odds of good fortune.

If you are considering an external sale, contact us at or to start your preparations with an independent business valuation.

1.  Sources: 2007 RBC Study - Quantitative Study of the Business Succession Market in Canada and CICA/RBC Business Monitor (Q1 2010).

Wednesday, May 21, 2014

Business Valuation - Critical for Pre-Sale Planning

An independent professional business valuation is a critical element of pre-sale planning for business owners.  

Various studies indicate that between 60% and 75% of business owners will exit their businesses within the coming decade. [1]  Over $10 trillion in private wealth will change hands in North America over this time frame, the largest transfer of private wealth in history. [2]

There certainly is capital out there currently sidelined and looking for good investment opportunities.  If you have an attractive and salable business, and you are ready, now may be the time to put it on the market given that the increasing supply of businesses for sale over the coming decade will put downward pressure on sale prices.  Under these conditions buyers will only pay top dollar for the most attractive businesses and those that come to market unprepared will risk selling for a significant discount or face liquidation altogether.

Effective pre-sale planning must begin at least 3 years prior to sale and should begin with a business valuation.  A current valuation provides: 

1. An indication of what the business owner could reasonably expect to fetch on the open market (i.e. managing value expectations will increase your odds of getting a deal done); and

2. A benchmark for enhancing the value of the business prior to an actual sale.  

The business valuation process involves a careful assessment of the company’s risk profile and the key value drivers for the business.  A valuation conducted by a professional valuator will identify areas of weakness to focus on to increase the attractiveness of the business to a potential purchaser.  Beginning early enough allows time to implement the key value enhancement initiatives required to maximize the price that is ultimately received in a sale.  

All business owners will eventually exit their business.  The importance of pre-sale planning must not be overlooked.  In a Newport Partners survey of more than 100 Canadian business sellers, 62% recommended methodically pre-planning the sale of a business two to three years in advance.  Less than 25%, however, actually did so themselves.  Success can be achieved by learning from the mistakes of others.  

Pre-sale planning is especially vital in light of existing demographics and the expected increase in the supply of businesses that will be put up for sale over the coming decade.  The planning begins with a business valuation so there is a frame of reference for measuring the effectiveness of the pre-sale planning activities.  Without one business owners may never realize just how much money was left on the table.

Contact us at or to start your pre-sale planning process with an independent business valuation.

1.  As per the Canadian Federation of Independent Business (CFIB) and the CICA/RBC Business Monitor (Q1 2010).
2.  Source: The $10 Trillion Opportunity, Richard Jackim & Perry Phillips, 2007.

Monday, May 05, 2014

8 Ways to Tell if You Are Building a Business or Just Have a Job

The ultimate test to determine if you own a valuable “business” or just have a “job” can be found in a simple question: would someone want to buy your company?  

Would your customers continue to do business with the company (and its new owners) after you are gone?  In other words, will the revenues and discretionary cash flows generated by the business continue after your departure?  This is a major issue for many smaller personal services businesses that have few, if any, employees and are very dependent on the owner(s) for generating business and performing specialized services.  

If you are planning to one day sell your business you should address this issue now to understand what, if anything, must be done to turn your “job” into a salable “business”.  Whether you want to sell next year or a decade from now, you must build an asset someone would buy – otherwise, you have a job, not a business. 

Here are eight ways to ensure you are building a salable business and not just doing a job:

1. A job requires that you show up at work to make money, whereas a business generates revenue whether you are there or not.

2. If your company is so reliant on a single customer that they can dictate how you deliver your product or service, your company is more like a job than a valuable business.

3. A job is a place where your personal reputation impacts your results, whereas a business is a place where the brand is more important than the personality of the founder(s).

4. A job requires you to use your personal experience and expertise to get a result, whereas a business is a place where a process – not a person – consistently produces a desirable result.

5. In a job, you get fired for taking too much vacation, whereas if you own a business, the more vacation you can take without impacting your company’s performance, the more valuable your business will be.

6. In a job, the harder you work, the more money you earn.  In a business, the smarter you work, the more money you earn.

7. In a job, you solve the problems. If you own a business, your employees solve the problems.

8. If the majority of your customers know your personal phone number, it’s likely you have a job, not a business.

If you are unsure as to the extent to which you own a valuable “business” or just have a “job”, you should get your Sellability Score.  Whether you are looking to sell now or in a decade, the Sellability Score assessment allows you to see your business as a potential buyer would see it and to identify areas to focus on continue building a salable business. 

Complete the Sellability Score questionnaire at and we will send you a summary report showing just how your business stacks up on the “job” versus “business” issue.

Monday, April 21, 2014

How to Minimize Costs in a Matrimonial Separation

A sobering statistic for many is that over 40% of marriages will end in divorce before the 50th year of marriage. [1]  This does not exclude business owners and a matrimonial separation can result in significant professional fees for business owners, especially when the value of the business is a key area of dispute.  An independent business valuation can help to minimize legal and expert fees for business owners going through a matrimonial separation.
The division of property is a major issue in a matrimonial separation.  According to the Ontario Ministry of the Attorney General [2]:
"When a marriage ends, … the value of any property that was acquired by a spouse during the marriage and still exists at separation must be divided equally between the spouses.  Also, any increase in the value of property owned by a spouse at the date of marriage must be shared.  The payment that may be owed to one of the spouses in order to effect this sharing is called an equalization payment, or an equalization of net family property."
Upon separation a net family property (NFP) statement is prepared setting out the value of the assets and liabilities of each spouse as at the date of marriage and the separation date.  Privately held business interests (i.e. shares, stock options, restricted stock, etc.) constitute property, the value of which must be included in the NFP statement.  The assistance of a Chartered Business Valuator will likely be needed where there are business interests and the parties cannot mutually agree on the value of the those interests as at the marriage date or the separation date. 
Depending on the separation process (i.e. collaborative, mediation, litigation, etc.), the parties may agree to jointly retain one independent business valuator to value the business interests.  One party, however, may opt to individually retain an independent business valuator.  The other party will often then retain a separate independent business valuator to review, critique and respond to the other expert’s report.  This can be a costly process. 
Where spouses disagree over the value of the business significant legal and expert business valuation fees can be incurred towards various activities relating to the value of the business interests (e.g. document productions, discoveries, legal motions, expert reports, negotiations, critique reports, trial, etc.).  This can become a very costly, time consuming, and emotionally draining process. If the business valuation issue becomes very contentious, professional fees can quickly escalate to well over $100,000. 
Obtaining an independent business valuation for a fraction of this cost can help avoid a disagreement over value in the event of a marital breakdown, which is well worth it if it saves hundreds of thousands of dollars in professional fees.  By not having an independent business valuation (and discussing this issue with your spouse) you increase the chances of there being a dispute over the value of the business in the event of a matrimonial separation.
Contact us at or to find out more about the business valuation process and the types of valuation reports that CBVs provide.
1.  Source:, CANSIM Table 101-6511.

Sunday, April 13, 2014

Avoiding Costly Shareholder Disputes

Business ownership can be complicated, particularly when there are multiple shareholders.  The odds of disagreement and conflict among shareholders over various issues can be very high.  When shareholder relationships break down there must be a mechanism in place for dealing with the dispute or for enabling one or more of the shareholders to exit the business in a pre-determined manner. 
A shareholder buyout can quickly turn into a costly dispute if the value of the business has never been discussed and agreed to among the shareholders.  Different shareholders likely have different expectations regarding the value of the business.  Having an effective Shareholder Agreement and obtaining an independent business valuation can help avoid a very costly, time consuming and emotionally draining shareholder dispute.
I have been retained in many shareholder disputes to provide an independent expert business valuation for purposes of determining a price at which the departing shareholder’s shares should be acquired by the remaining shareholder(s) or redeemed by the company.
In my experience, these disputes can be devastating to the business as well as the individuals involved.  The shareholders become distracted and ultimately exhausted from preparing for and attending discoveries, meetings with lawyers and experts, settlement negotiations and arbitration or court proceedings.  Relationships are destroyed and ultimately the business suffers because the shareholders are no longer devoting sufficient time and attention to managing the company’s operations.
The importance of a Shareholder Agreement to privately held business owners cannot be over emphasized.  An effective Shareholder Agreement should address the following areas: i) compensation; ii) decision making; iii) entrance; iv) exit; and v) return on investment.  Privately held company shares are illiquid assets and the Shareholder Agreement should provide the shareholders with the means to liquidate an otherwise illiquid asset under certain triggering events.  For example, a buy-sell provision (or "shotgun" clause) allows for one shareholder to offer to buy the shares of another shareholder subject to the right of the other shareholder either: i) accepting that offer; or ii) buying the shares of the offering shareholder at the same price offered by that shareholder.
With respect to the valuation of the business and the individual shareholdings, the Shareholders Agreement should provide a definition of value (e.g. fair market value or fair value) and set out the process and timing for obtaining an independent valuation.  Many Shareholder Agreements stipulate that an annual or biennial valuation of the business should be prepared by an independent Chartered Business Valuator (CBV).  This independent valuation forms the basis for new shareholders to buy-in and for existing shareholders to exit or measure their return on investment. 
Committing to a formal business valuation allows the shareholders to discuss and agree to the value of the business before any potential disagreements arise.  In the event of a shareholder buyout, the valuation issue will have already been addressed.  The return on investment to the shareholders will be substantial if it means avoiding a costly, time-consuming, emotionally draining and perhaps devastating shareholder dispute down the road.
Contact us at or to find out more about the valuation process and the types of valuation reports that CBVs provide.

Saturday, April 05, 2014

Business Valuation – Critical to Enhance Value and Manage Wealth

As a business owner, the value of your business likely represents a significant portion of your wealth.  According to a publication by Mercer Capital:
"About 75% of all private equity is owned by households for whom it constitutes at least half of their total net worth. Households with entrepreneurial equity invest on average more than 70% of their private holdings in a single private company in which they have an active management interest."  [1]
Enhancing and managing this privately held business wealth is critical to business owners and this process begins with an independent business valuation.
Value Enhancement
The process of enhancing the value of your business begins with a business valuation which provides a benchmark from which to measure value increases over time.  The valuation process will also identify key value drivers to focus on to enhance the value of the business.
Resulting value increases will provide a significant return on the investment in a business valuation and value enhancement initiative.  We have seen clients double their business value within a two year period

Potential purchasers will be very impressed if you have documented how you increased the value of your business over time and identified opportunities for further growth and value enhancement.  Your chances of attracting numerous suitors and securing a deal for top dollar will be greatly increased.
Wealth Management
In order to effectively manage your wealth you need to know the value of your assets, including your privately held business.  Annual fees are paid to wealth managers to manage your liquid investments (e.g. publicly traded securities).  Monthly statements are provided setting out the value of these investments to assist with decision making.
Privately held business owners often spend significant time managing the business but little time managing the wealth associated with their business.  An effective wealth management strategy allocates a percentage of the value of the business to managing this privately held wealth.
The One Percent Solution suggests recommends for business owners to invest 1% to 2% of the value of the business towards a "wealth management budget" which includes, among other things, an annual business valuation and monitoring critical success factors and key value drivers.
All business owners will one day exit their business.  An independent business valuation can help you identify what percentage of your overall wealth is tied up in the business and identify key areas to focus on to enhance the value of your business.

Contact us at or to find out more about the valuation process and how it can help enhance the value of your business and manage your wealth.
1.  Source: The One Percent Solution, Z. Christopher Mercer, 2007.

Friday, March 28, 2014

Business Valuation – Critical for Managing Value Expectations

Are you trying to build a business to one day sell for top dollar?  If so, it is critical for you to manage your value expectations and to be aware of how your business will be perceived and valued by potential purchasers.
Many business owners have unreasonable expectations regarding the value of their business.  According to RBC Business Succession Planning: Your Essential Roadmap, "It is important to get a professional business valuation, since owners may grossly overestimate or underestimate the value of their business."
Some business owners overestimate the value of their business and others actually underestimate the value of their business.  I have seen both situations before and there are serious implications to erring on one side or the other.  
Implications of Overestimating Value
Business owners that overestimate the value of their business may do so because they place too much emphasis on sweat equity or they ascribe value to the personal goodwill associated with the business.  Sweat equity refers to the effort and time put into the business and personal goodwill refers to the value associated with the personal skills and abilities of the business owner which are not commercially transferable.  A potential purchaser will not be willing to pay for the business owner’s value expectations if the company financials do not support them.
A potential purchaser is interested in future cash flows.  When the target’s cash flows (current or future) do not support the business owner’s value expectations, this creates a (potentially significant) gap between what a potential purchaser is willing to pay and what the business owner expects to receive.  The larger this value gap the greater the risk of not getting a deal done.

Implications of Underestimating Value
Business owners that underestimate the value of their business may do so for many reasons.  They may not understand how a potential purchaser values a target company.  They may not appreciate the value associated with various intangible assets they have created (e.g. customer relationships/contracts, intellectual property, proprietary technology, goodwill, etc.).  They may have based their value expectations on outdated or inappropriate industry rules of thumb.
A potential purchaser may see value that you were not aware existed, especially if you are dealing with a strategic purchaser. [1]  The price paid in an actual transaction is the result of a negotiation and a potential purchaser will rarely put forth their best offer initially.  If you are not armed with the ability to understand and justify the value of your business to a potential purchaser you run the risk of leaving significant money on the table.  You may be inclined to accept an initial unsolicited offer without attempting to negotiate a higher price based upon valuation principles and valid assumptions.
The consequences of overestimating or underestimating the value of your business can be severe.  An independent business valuation conducted 3 to 5 years prior to sale allows you to manage your value expectations and enter meaningful negotiations with a potential purchaser, provide reasonable justification for your value, increase your chances of getting a deal done and not leave money on the table in the process.
Contact us at or if you want to manage your value expectations and minimize your risks with an independent business valuation.
1.  A strategic purchaser is one who believes it can enjoy post-acquisition economies of scale, synergies, or strategic advantages by combining the acquired business interest with its own.