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.