According to a study by the Canadian Federation of Independent Business (CFIB) , almost three-quarters (72 per cent) of SME owners intend to exit their business in the next 10 years. The vast majority are thinking of selling their business or transferring their business to retire and only 8% have a formal written plan. According to a study by the Business Development Bank of Canada (BDC), more than 40% of Canadian entrepreneurs will exit their business to retire within the next five years and these studies were before COVID-19.
For a business owner, no decision is more important than the decision to sell their business. Engaging in a sales process requires careful thought and preparation. There is a lot of emotion in a business sale and it is one of the most important decisions of a lifetime.
Many Business owners have not done any succession planning. Some say they do not have the time, are preoccupied with managing their business, do not want to think about leaving, or do not know how to proceed.
It takes at least 2 to 5 years to do a proper transition.
The business can lose significant value if there is no exit strategy and if you must sell because of health problems.
Business owners put a lot of emphasis on growing their businesses, but they do not realize that with proper planning, they can also maximize the value of their business.
HOW DO YOU PREPARE?
They need to plan the transfer process with the help of experienced advisors, such as a business coach, accountant, tax specialist, lawyer, estate planner or financial planner, family advisor, financial partner and an expert in business valuation and M&A.
CLEARLY DEFINE YOUR GOALS AND ASPIRATIONS!
- Take a step back and think about the future of your business in two to five years.
- Do you know the role you want to play by the time you leave?
- Have you discussed your project frankly and openly with your relatives and collaborators?
- Do you have a concrete plan for your retirement and your new life?
- Do you know your financial needs for this stage of your life?
- Do you feel financially secure?
- Do you know the needs of your business to ensure its continuity?
- What about your tax planning? Is it optimal?
- Are you sure that your estate is well protected?
- Why are you selling?
- Are you well surrounded by experts?
DETERMINE AND INCREASE THE VALUATION OF YOUR BUSINESS!
- Start thinking of ways to maximize the profitability of your business.
- Do you have tight financial controls and processes in place.
- Reduce Costs and do some housekeeping.
- Examine your business from the point of view of a buyer.
- Develop and demonstrate a growth plan and a predictable EBITDA
- Sell the future of the business
- Do not be dependent on your business (Leverage)
- Evaluate the quality of the management team
DETERMINE THE BEST SCENARIO FOR THE TRANSFER!
There are three scenarios:
- Family transfer
- Employee&/or management buyout
- External sale or merger
DEVELOP A SUCCESSION PLAN!
- Identify your successors.
- Identify your expectations and those of your successors.
- Identify your role: Would you like to continue working in the company or be a member of the board of directors?
- Form a transition committee.
- Prepare a strategic plan.
DETERMINE THE TIME FRAME FOR THE TRANSITION!
- What will be the timeline leading to your successor?
- Choose the right time not to affect operations and to receive the full value of your business.
Are you ready?
Orest Lysymanko, PCC