Can you put a price on your life’s work? When it comes time to sell the businesses they’ve spent so much time, energy, and capital to build up, entrepreneurs are often forced to. But buyers and sellers don’t always arrive at the same figure.
Exiting for a fair amount requires an understanding of what buyers want and expect in a potential acquisition. Recently, we asked business brokers, entrepreneurs and M&A experts for their advice on getting the best possible price for your business. Here are some of our favourite responses.
Hold out for the right buyer
“Find a buyer who really wants your business. If it’s just a financial transaction to the buyer, you’re going to be limited to the numbers. If the buyer needs your business, you’ll have room to negotiate. When I sold my company, I told the buyer what I wanted and I ended up getting exactly that. Also, if you’re not taking a salary that would be enough to attract someone else, that will end up affecting your sale price. I was earning a good salary but my comptroller said, ‘You could never have someone come in and do what you do for that salary.’ Do it before you start courting buyers.”
—Kathryn From, founder, Wonderment Ventures, Toronto
Build your A-Team
“Before putting your business up for sale, you need to make sure you’ve adequately replaced yourself. Bring in an operations manager or CEO. Your company has almost no value without that. It’s very important that you always have someone to run the day-to-day business as soon as the company is any size at all. I don’t believe in fluffing up a company or hiring people specifically for a sale. In hiring these people to replace you, they can help you build a great company. If it’s a great company, you’ll have multiple interested buyers.”
—Marnie Walker, owner, 401 Bay Centre, Toronto
Cut out the fat
“I have clients sitting on a large amount of inventory or assets that are not performing, which causes redundancy in the business. We advise them to clean the house and keep only items that are relevant in the process of the business. For example, if you’re a machine shop making $1 million in revenue and have a big piece of equipment that’s worth $500,000 and just sitting there idle, we’d advise you to take this out of the business and sell it separately, rather than try to put it as a part of the sale offering. The value added by that equipment would be almost nothing in terms of the sale price.”
—Alex Shteriev, managing director, Beacon Brokerage, Toronto
Clean up your books
“There are a few key things that most people don’t do that are critically important. Number one is to have their financials in order. When you’re trying to sell your business for a certain value, you must have reports and paper trails to support that valuation. Also, you need to have financial statements that represent the state of your business. Too many business owners co-mingle their personal and business expenses and it becomes a mess. Having a clean book is critical.”
—Steve Skrlac, broker and president, Keystone Business Brokers, Toronto
Attract repeat customers
“Highly predictable companies with guaranteed future revenue and profits sell for higher prices. Subscription-based businesses, for example, don’t have to spend extra money on new customer acquisition. Once they’re signed up, it’s for the long term. That’s why they’re valued much higher than a business that has to find clients for every new project.”
—Omar Kettani, president, Toronto Mergers and Acquisitions, Toronto
“Some of the most successful businesses are franchises because they have developed processes for everything, and they’re put into a book so that anybody can come in and learn. Typical small businesses don’t have that. There’s no rationale to how things are being done, and if someone is taken out of the system, very few people know how to do that person’s job. One business owner I interviewed was able to sell his business for three times the typical rate for his kind of business because he had processes documented. The buyer was willing to pay a lot more for it because the employees were following the processes written in the book.”
—Wayne Vanwyck, founder, Achievement Centre International, Elmira, Ont.
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This article is from the November 2015 issue of Canadian Business. Subscribe now!
MORE BUSINESS SALE STRATEGIES:
- How to Secure a Successful Exit »
- What Your Business is Really Worth »
- 7 Keys to Preparing Your Business for Sale »
- Exit Tips from an Entrepreneur Who Sold His Business—Twice »
- 7 Steps to Selling Out Big »
Have you sold a business? How did you get the best possible price for it? Add your suggestions by commenting below.