Whether you’re currently looking to sell your company or simply curious about business trends, you may have noticed a large number of businesses for sale.
As a seller, you can choose to see that as a deterrent or an opportunity.
We asked Michelle Rogers, CPA and CMA at Virtually There CFO Services, to get some expert advice on selling your business from the perspective of a professional business accountant.
“It’s been long known that baby boomer business owners are retiring in record numbers, says Rogers. “They’re determining if they’ll sell or pass their business onto a successor.”
While baby boomers have been retiring for years, COVID-19 is speeding it up.
“The pandemic has put additional stresses on struggling businesses and is causing all of us to re-evaluate our personal and professional priorities,” she says.
“I’ve heard from many sources that the availability of investment dollars is extremely high right now — for the right business,” says Rogers. “Many investors will be looking for a good deal, so how you present yourself has a significant impact on how many buyers approach you, and their quality. By preparing your business for sale before entering the market, you show buyers you’re serious.”
The first step before determining the price of your business is to get a valuation done by a professional valuator. Most CPAs will be able to do it for you. Alternatively, you can search for business valuators online, but look for Chartered Business Valuator (CBV) credentials.
In addition to establishing a sale price, Rogers says a valuation is also “a helpful way to set or reset a seller’s expectations, a great way to show confidence and a jumping-off point for identifying unnecessary expenditures, growth avenues, irregularities and risk.”
She explains that a valuation isn’t a final determination of your worth. Rather, it’s an assessment of value from a financial performance perspective at that moment. It’s just one step in the preparation for sale.
“Like with a home, you can command a higher price from your business if it’s well cared for, in a good neighbourhood and free of clutter,” she says. “One typically works on updating their property to a reasonable extent, obtains expert valuation and then decides how to price it. Your goal as a seller (of a house or a business) is to prove to buyers that your asset is what you say it is.”
You could aim higher, which may narrow your field of prospective buyers, or you could aim lower to attract more buyers but risk selling for less than you hoped.
Use your valuation as a benchmark. How much would someone actually pay based on that value? What would you pay? Would you accept that as an offer?
“Purchasers pay top dollar for a company that has strategic importance, a repeatable revenue stream, a stable and talented employee base and happy, repeat customers,” she explains.
Rogers says to de-risk your business as part of the sales process.
“De-risking means making your potential buyer feel confident by showing them sustained financial stability, a reduced reliance on a small number of people and the ready availability of the key ingredients to your ‘secret sauce,’” says Rogers.
If you are selling your business yourself, here’s some steps you can take:
“Practically speaking, you have to find someone who (a) can afford your asking price (b) sees value in your business at that price and (c) can extract value from it in the future.”
Rogers recommends using an intermediary like a well-connected lawyer or investment advisor to source strategic buyers and negotiate on your behalf. “This allows the seller to maintain a good relationship with their buyer, and it’s especially helpful if the seller is staying on to help with the transition.”
It’s understandable, however, that you may personally be searching for an operator who values your company the same way you do — someone who wants to keep your current employees working. In this case, you’re also assessing your buyer. Are they a strong leader? Will their skills benefit the company? Do they fit into the existing culture?
“Financial considerations are only one part of the selling process,” Rogers adds. “An experienced negotiator will provide guidance in areas that wouldn’t normally occur for the average seller.” This includes finding the right person to lead your company to further success and convincing them they’re the one for the job.
“Outline what makes your business attractive to buyers in a presentation like a PowerPoint,” says Rogers. “It should include your sales figures, your value proposition and market position, as well as any future opportunities you’ve identified.”
But she further explains that simply explaining your business isn’t enough to stand out. “Buyers are looking at how to de-risk and leverage their investment — so include content that addresses both objectives.” Rogers also recommends outlining as many aspects as possible to give buyers a comprehensive idea of the business, and says that sellers should expect potential buyers to “talk to key customers, look at employee turnover stats and complete independent surveys for both groups.”
“A strong financial advisor should be part of any seller’s team if they want to walk away from the deal happy,” says Rogers. “A financial advisor will be able to anticipate every step of the process, help you make difficult decisions and avoid potential obstacles.”
But the more important the transaction, the more important it is, she says, to surround yourself with the right experts.
“A good accountant will verify the valuation, factor in the taxes owed on the sale and help structure the deal to maximize the seller’s return. A good lawyer will protect the seller’s interests throughout the process and make sure the deal progresses smoothly and without surprises.”
With the right number, the right story for potential buyers and the right team assembled, a seller has every reason to believe they’ll find the right buyer and make the right deal.
We're here for you and your business. Let us connect you with the resources and advice you need to keep your small business financially healthy – even during a large change, like selling. Connect with your Business Advisor directly, call 1-888-597-1083 or contact us online to speak to a financial expert.