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.

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