Buyer Preparation Puts Pressure on the Seller

Insights Aug 28 2018
buyer preparation puts pressure on the seller

They say that there’s nothing like a “healthy dose of stress” to get you motivated for something important.

Well, if you’re planning on selling your business in the next few years, here’s your healthy dose of stress.

Even though most baby boomers are retired or nearing retirement, small business owners tend to be older than the average working person. Across Canada, 60% of business owners are aged 50 and above. Reports suggest that 41% of these business owners intend on selling in the next five years.

That total increases even more so right here in B.C., where 53% of business owners are looking to sell within the next five years. Along with Alberta, that’s tied for the highest average in Canada.

The rising average age of business owners in Canada means more businesses across the country will be putting up the “for sale” sign. With all these businesses about to flood the market, valuations will decrease. Purchasers will be presented with many different options, allowing them to look for bargains and deals. All of this means that a buyer’s market is certainly on the horizon.

So buyers, time to rejoice! Sellers, it’s time to get ready to maximize that return.

Are you prepared to continue investing in your business?

Just because the market will be flooded with sellers over the next few years, doesn’t mean that you can’t get full value for your business. A study from the Business Development Bank of Canada (BDC) in 2017 showed that many Canadians aren’t prepared for the most important transaction of their life.

Before you sell your business, you want to do everything you can to maximize the value. Sometimes, that entails changing things up, or investing in order to get there. However, many business owners across Canada seem unwilling to make extra moves for the sake of their business. If you are not willing to invest in your own company, why would anyone else?

For Canadians who do want to sell their business, only 22% of them are planning to wind things down before selling off the assets. For the other 78%, there should be some consideration for helping the business grow, so that your business stands out against the competition.

While that logic is sound, it isn’t the norm. According to the BDC, 52% of business owners looking to sell have little interest in expanding their business. This cautious approach is a glaring flaw. If you’re selling a cake, wouldn’t you want to decorate it with icing, candy, chocolates, and anything else to make it stand out? Wouldn’t you want to use the best possible recipe so that your cake leaves a lasting impression?

Sorry to get you thinking about baked goods, but business owners need to find ways to make their business look more attractive, both inside and out. That comes from dressing up and solidifying your operation to make it look and be more valuable to the buyer.

How to stand out as a seller

Sometimes business owners can be shy about re-investing in their business late in the game. That’s fair. Why would you want to risk more capital when you are really looking to get it out?

Buyers know when you are coasting, and it affects what they are willing to pay.  Put the shoe on the other foot…would you pay more for a neglected business with an owner who has one foot out the door, or for a business that is running on all cylinders, has great future potential and a plan to capitalize on it?

Typically, you are paid back in multiples for any smart strategic investment you make, with the added benefit that you stand out against competitors. You want to keep your operation running in sixth gear as you race towards the sale, rather than put things in neutral.

Here are some things you can do to stand out amongst the crowd:

  • Make sure all processes, financials, agreements, and documentation is up to date. If your business relies on operational equipment, is yours better maintained and more efficient than your competitors?
  • Always be looking for ways to grow the business. Buyers are always looking at potential. It’s important that you find ways to make sure your business has better potential and a plan to capitalize on it than your competitors.
  • Think outside the box when it comes to potential buyers. Employees, competitors, private equity, a supplier who might want in on your distribution are just a few options.
  • Think like a buyer. What would you want if you were on the hunt for a great investment? And what would wow you when you approached the target to get a better look? Maybe a fully prepared buyer document package with everything they would possibly want to see and more? Wouldn’t that show it’s a forward-thinking, on the ball, organized operation?
  • #1 suggestion – get good help. The right team to help you plan, organize and execute your exit strategy is the best decision you will ever make.

Buyers are now more prepared than ever before. It’s an important transaction for those purchasing the business as well. Buyers often have advisors walking them through the whole process, and private equity firms might even target your business if you fit their niche.

If you want the most out of your business, you need to make sure that you’re prepared – or even more prepared – than the diligent buyers looking to find their next bargain.

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