Your Business is Always for Sale: Are You Ready? The 3 P’s to drive up the price of your business

According to the Canadian Federation of Independent Business (CFIB), two thirds of Canadian business owners plan to sell their companies within the next 10 years. With so many businesses set to hit the market, how will you position your business so you attract a buyer and get top dollar for your business?

Aleem Bandali, Managing Director with MNP Corporate Finance has experience managing divestitures of all sizes in a variety of industries. While every sale presents its own set of challenges and opportunities, Bandali has identified the 3 P's—prepare, position and package—to help ensure you maximize value and effectively position your business for sale in any market. The three phases are broken down as follows:

Prepare

It is never too early to start. Even though the sale of your business may be years away, there are critical factors you need to address today to ensure your company is structured properly and your infrastructure is adequate now and, more importantly, in the future. Getting the right people in place and retaining them is crucial. It's also important to have yearly strategic planning meetings where you and your management team set goals for your company so there is a plan to follow and measure results against

Position

Now that you have a solid foundation for growth in place, it's time to improve your business. Your accounting software and IT systems should enable you to see which product lines and services are most profitable and where improvements need to be made. You should also be continually reviewing processes to maximize efficiencies. This is the phase where a lot of your focus will be centered on increasing value.

Package

You are now prepared and the value of your business meets your financial goals and retirement plans; it's time to market your business most effectively. This is a very time-consuming process as the goal is to attract two to five serious buyers, negotiate with each of them and get the best price possible. Effective packaging is like taking a rock and making it look like a diamond. In many cases, this is the most crucial stage of the divestiture process; many businesses benefit greatly from working with external advisors who have the knowledge and insight to make their business stand out in the marketplace.

To further assist you in implementing the 3 P's and building the value of your business, Bandali has identified six universal drivers that will help you maximize the return on your investment, regardless of the industry or size of your company.

1. Start Planning Now

Preparing your company for a divestiture well in advance will help stakeholders maximize value. “I'm always asked how long the sale will take and the short answer is that it depends,” says Bandali. “The real question is what do you want for your business and is it worth what you think it is? If you want $10 million and the market is only willing to pay $5 million, then some work needs to be done before we take it to market. You can start to build value by identifying the key value drivers in your industry and then working with your management team and advisors to implement a plan to improve the business. Once you are well on your way there, how fast your company sells depends on market conditions and the unique attributes of the business. Some companies sell in four months, others take more than a year.”

2. Develop Your Leadership Team

Developing and implementing your divestiture strategy two to five years before you want to sell is key. “Your divestiture strategy must be carefully orchestrated because it's a very time consuming and demanding process,” Bandali cautions. “Most business owners underestimate the complexity and discipline needed to plan, execute and manage a divestiture while attending to their day-to-day business needs.” It's a full-time job and it's better to have several suitors looking at your business, not just one, so you have more negotiating power.

Having a strong management team in place, that can operate the business with little reliance on the owner, is extremely valuable to potential buyers. That way, success and future growth is not entirely dependent on the relationships, involvement or leadership of the current owner. This makes transitioning the business far easier. “Being transparent with all the shareholders and motivating key employees to stay on with the company following the sale will make your business very appealing to new owners. If you do not have managers who want to stay with the business over the long-term, go the extra step to find and hire top talent that you can groom for leadership roles. A strong management team and a good retention program will strengthen morale and that's vital to maintaining the value of your company and it's reputation,” says Bandali.

3. Update Your Business Plan

Most financial and strategic buyers are extremely savvy consumers. They want to realize immediate cost savings, and leverage operating synergies which will drive growth subsequent to the acquisition. “This emphasizes the need for yearly projections and an updated business plan. It does not have to be a formal 100 page document with a five year projection, but it should outline your growth strategy and how you'll reach your targets. It should also detail your company's niche and competitive advantages. This reassures buyers that the future of the business will be secure after you're gone,” explains Bandali.

4. Monitor Key Performance Indicators

Buyers are looking for a well-documented history that shows a strong financial position and solid growth. It is essential that you identify key performance indicators, regularly monitor them and address areas lagging in performance.

5. Stay Focused on Growth

All businesses will transition ownership at some point. Constantly look for ways to improve your business and never lose sight of your goal, which is to increase value. This is especially crucial during the divestiture process. Most buyers want to acquire a growing business. Stable is good, but growth means that they will pay more for your company and the opportunities it presents. “When an owner or management team put off decisions or start focusing on post-sale too soon, then results of the company can suffer and potential buyers often change the terms of the offer or walk away all together.”

6. Remove Obstacles

How prepared an owner is prior to the divestiture is as important as timing and market conditions. “Before selling, clean up any outstanding accounting issues, settle any labour disputes or pending lawsuits because they are bound to come up during due diligence and can be a costly surprise,” warns Bandali. Preparing for the buyer's due diligence process is important. Owners should have all their accounting records and tax returns in order, policies and procedures documented and any environmental assessments, licenses, appraisals, etc. updated before the divestiture process begins.