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DECEMBER 2016
SELLING YOUR BUSINESS – DON’T KILL THE DEAL While businesses sell all
T
the time, don’t make the mistake of assuming it will be quick or easy
Mike Berris, CPA, CA, CBV and Partner at Smythe LLP
ACTUAL STICKER FROM PARKSVILLE CHRYSLER
ACTUAL STICKER FROM “OTHER GUYS”
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profits. There are a number of other strategies that can improve the chances of successfully completing the deal. These include: Be Prepared – Ensure you can demonstrate that the business can earn consistent profits for the buyer subsequent to the purchase. This requires that your financial records are in order. You should also be able to show that the current customers or sales will remain after you’re gone. Understand who the Buyer might be – You will want to target parties that are ready, willing
and able to purchase. Nothing is more frustrating than spending several months with someone that can’t or won’t close. Be Rea l istic on the Price – Preferably you want to conduct an auction process where potential buyers are put in the position to competitively bid for your business. In cases where this is not practical, a Chartered Business Valuator (CBV) can help you with either a pricing analysis or by preparing a valuation report. Be Flexible – While not ideal, sometimes the best deals require you accept an earn-out or even provide financing with a vendor take-back. With proper safeguards, the arrangements can help bridge the gap when there is a stalemate in the negotiations on price. Engage Professionals – Selling one’s business is a complex process involving many interconnected components. While it might appear straight-forward at first, the process can quickly lose momentum. An experienced M&A advisor and lawyer will help you get the highest net price combined with the best terms. To put this all in context, I will speak in general terms about two deals we are currently working through. In the first, our client is interested in buying a successful
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here are a lot of great reasons to start and grow a busi ness. Some of t he best reasons include, but are not limited to, the ability to earn an income commensurate with your hard work, flexible work arrangements and the pride to watch something you own grow and prosper. In my view, one of the best reasons for entrepreneurship is the ability to monetize your hard work at a point in your life when you either want to retire or pursue other interests. While businesses sell all the time, don’t make the mistake of assuming it will be quick or easy. The Pepperdine University conducts a regular survey of private market transactions and found that 35 per cent of all sale processes fail to complete. Of these failed deals, 40 per cent are due to the inability to agree on a price, 22 per cent fail because of unreasonable demands by the buyer or seller, 9 per cent fail due to financing and the balance for a variety of reasons. Another interesting point is that 70 per cent of business sale transactions take more than twelve months to complete. While it goes without saying, you will be best prepared to negotiate the highest price with the best terms if your business delivers consistent or growing
Vancouver Island business. The vendor, who arbitrarily set the price at $5 million, has not engaged professionals to run the process and has not been able to supply the information required to properly evaluate the quality of future earnings. Of course our client walked away. Eight months later, the vendor has not found a buyer and approached us again, still without a proper process in mind, but a lower price. We now have the upper hand, but still may advise our client to walk away. In the second deal, we are engaged to run a divestiture process where our client allowed us to properly prepare for the sale, identify numerous potential purchasers, run an auction and then assist his experienced lawyer to negotiate the share purchase agreement. In this case, our client has a strong $43 million deal on the table that we expect will close in December. The above examples are similar deals, each with different outcomes based on the management of the process. Smythe LLP is a team of dedicated professionals who provide reliable accounting, tax and advisory services to businesses and individuals. They can be reached in Nanaimo at (250) 755-2111.
SAME TRUCK LESS THE MADE UP PRICE INCREASES LIKE
Base Price: $54,395 Base Price: $54,395
“DEALER MARKUPS”
TOTAL PRICE: $65,380 DEALER INSTALLED $ ACCESSORIES & MARKUP
6,865
TOTAL PRICE: $74,455
OUR FOCUS... HONEST DEALS AND GREAT SERVICE NOT MADE UP PRICES!
Parksville *** & '"()!## '+(# ' %$ ,