As a business owner, there are times when decisions must be made quickly, even in the spur of the moment, but selling a business is definitely not one of them. In fact, selling a business is something business owners should start thinking about three, even five years before they intend to sell, says Suzanne Loomer, partner, advisory services for KPMG.
“A good entrepreneur will have an exit strategy in mind, almost from the beginning,” she adds.
Loomer, who has been with KPMG’s advisory services in Atlantic Canada for three-and-a-half years, has more than 24 years of experience in business valuation. She stresses that for a business owner to successfully sell their business, strategic planning, effective execution of those plans and timing are key.
Loomer says she helps business owners understand the value drivers of their business, which ultimately influence what potential buyers will be willing to pay.
“There are a number of reasons why a business owner may want to sell. Maybe they want to sell their business in order to retire or buy another one, or perhaps there is an existing shareholder that wants to leave and they want to sort out at what price that should happen,” she explains.
Loomer’s clients range from small businesses — those that generate a million and less in revenues — to larger, public companies, but regardless of the size she says, in order to maximize the price business owners can get for their business, several factors come into play:
- The business is well-positioned for a sale.
- The owner has put in place strategies to maximize their after-tax proceeds and is ready to sell the business.
- Market conditions for transactions are favourable.
Business owners can’t control what the market conditions are, but they can influence the other factors so that, with proper planning, when an opportunity presents, the business owner is ready to take advantage of it.
“We usually think about selling a business from a succession standpoint, but that doesn’t mean you have to wait until you are in your 50s, 60s and 70s to think about positioning your business for sale. You always want to have your business ‘saleable.’ You want to make your business saleable even from the beginning,” she says.
The key to this is assuring as a business owner that you do things in a professional way from the get-go. “So, for example, you don’t have ‘back-of-the-napkin’ accounting. You have a proper accounting system in place; you have good accountants and advisors from the start.”
Another key strategy is to put a professional management team in place as you grow, she says. This is imperative for several reasons. “As a business owner, you don’t need to do everything yourself, which has obvious advantages, but as well, your business will actually be more valuable and saleable if it is less reliant on you and more reliant on a team of people that are good at what they do.”
Understanding what drives value in your industry and your type of business is imperative whether you intend to sell or acquire a business, which again she says, require time, foresight and planning.
Selling a business
“We will start talking to our clients about succession and exit strategies ideally three-to-five years before they actually want to sell. The reason why you do that is because, as a business owner, you will have more choices when you think ahead and put into place the things that need to be there to support a successful exit. When it is time to sell, you have more opportunities available to you,” explains Loomer.
“For example, if selling your business for as high a price as possible is important to you (it’s not necessarily the primary goal for all business owners — some business owners may have other priorities too) there may be improvements that can be made to the business before they actually sell and those improvements may take time to put in place.”
Loomer notes there are some things a business owner can do more quickly than others, such as getting an audit of their financial statements if that has not already been done. “Within reason, this is something you can do almost immediately.”
That being said, there are other operational improvements that will help build value in a company that will take time. “If you need to hire a controller, for example, or you need to add to your management team so the business is not as reliant on you, it will take time to get them in place and for them to make the improvements they are likely to make to increase the business’ value,” she says.
There are other things a business owner may want to do prior to selling that are not necessarily related to the operations of the business such as corporate restructuring so you can take advantage of tax benefits, Loomer explains. “If you want to use your capital gains exemption, or you want to do other things regarding structuring around your assets so you get more of your sale proceeds after tax than you otherwise would, those strategies can take a couple of years to actually be available, so you need to do that planning ahead of time.”
“We have never met a company that had to make an acquisition . . . but we do meet owners in situations where their only option is to sell. Far too often, circumstances — instead of deliberate planning — dictate when and how a deal gets done,” says Loomer.
She adds, “Ultimately, hiring a chartered business valuator (CBV) and other advisors early in the business’ evolution to help you understand what drives value in your specific company, will help you make decisions in a more informed way and on your terms.”
Buying a business
Typically, organizations that have some sort of acquisition in mind will also have an acquisition strategy well before they approach their target. “An acquisition may not require that the acquirer be thinking three-to-four years ahead like it would if they were selling a business, but having an acquisition strategy in advance will assist in assessing acquisition opportunities more objectively, and allow more time to determine what financing is available, for example,” she explains. “You want to make sure you have your own house in order so you can integrate a business into your own company if you already have one. But for the most part, acquisition planning generally involves a shorter timeframe than if you are selling.”
Loomer says, “Today’s market is an interesting time from a mergers and acquisition standpoint because the market is very buoyant and very positive and there is a lot of money looking for good opportunities to finance or acquire.” She adds that while the types of businesses in which transactions are occurring is “almost across the board,” she sees a lot of positive movement in the technology and healthcare sector and consumer discretionary sector are also transacting. “Locally, technology companies and businesses related to fisheries and oceans are active right now.”
Planning
The biggest struggle business owners encounter Loomer says really goes back to planning ahead.
“We know that succession is always in the back of a lot of business owner’s minds and they don’t always want to start thinking about the next stage in their lives until they have to but it is really in their best interest to do so. Having the conversation with your accountant, your lawyer, your banker, your financial advisor early on is key. All of those advisors can provide really useful insights ahead of time that will help you make informed decisions in the long run,” she says.
“It doesn’t mean you have to sell now because you start talking about it, but having that advice well in advance means you can take advantage of that advice. It’s really around starting the conversation.”
Loomer says she works with businesses in all stages of their growth. “We have some companies that are very early stage and need help putting together information so that their banks will lend them money to get started. We will help them develop a strong business plan, we will help them put together forecasts and other sorts of things that bring value and understanding to the business.”
As a business evolves and starts to grow, Loomer says she works with tax advisors to provide valuations required for tax structuring and reorganizations, such as moving intellectual property around and for estate planning.
“We also work with clients needing advice because they have had some event happen which requires them to have a valuation of their business done. Maybe, unfortunately, they split up with a spouse or one of the owners or founders of the business wants to get out and do something different, so they need to have a valuation to help frame negotiations,” she explains.
And when the time comes to sell the business, Loomer says she can also help them to price out what a reasonable price expectation is and ultimately help them to sell the business successfully.
“We are full-lifecycle advisors.”
The bottom line she says, “Planning ahead helps owners and operators understand alternatives and gain the flexibility that can improve the probability of success. Identifying value creation strategies early offers a roadmap to better manage the future growth in the value of your business. Implementing these strategies will take time, but identifying and implementing them in advance of a sale means the business will be ready to sell when you are. Good succession planning is a process, not an event.”
For more information, contact Suzanne Loomer, MAcc, CPA, CA, FCBV at [email protected].
