Is your business your most valuable retirement asset…on paper? How do you convert this paper value into cash?
Eventually, you may need to sell your business or transition management to someone else while you retain ownership. Here are the stories of two successful Saskatchewan entrepreneurs who recently sold their businesses. They contain great advice, even if you want to step back and retain ownership.
Coutts Courier. Photo by Ron Coutts.
Ron Coutts and his wife Sheila started Coutts Courier in 1983. They grew it from hard work and long hours to become one of the largest private courier companies in southern Saskatchewan with a stellar client list. Ron and Sheila were thinking about retirement and travelling more. Since their family didn’t want to buy the business, Ron was open to offers.
We approached a strategic buyer: a larger transportation company who was also their customer. There was a foundation of familiarity and trust, so that accelerated the process. We aligned the deal structure on both parties’ interests. Selling your business is part art, part science, part psychological, and part financial.
A Letter of Intent was obtained from the potential buyer, due diligence was performed, and the legal chess of back and forth offer agreements started. The business was sold, from initial contact to final closing, within five months. That’s quick for a sale.
If you’re thinking of selling your business, Ron’s advice is simply: “Don’t do it yourself. Hire a professional you trust to broker the deal.”
Larry Hilworth and his partners owned Maple Farm Equipment in Yorkton. They were approached by the one and only Jim Pattison, a Canadian entrepreneurial legend, to be acquired. Larry is a former banker, and he ran a tight ship. Even though there were over 2,100 emails exchanged during the sale process, Larry also kept his business operating at full speed, and the sale was successful.
Larry’s advice for selling your business covers all the areas that a buyer needs in a deal, including:
- Financial: Always be ready to be an acquirer or to be acquired. That means cleaning up the clutter (just as if you were selling your house) and making sure your “balance sheet is bullet proof.” That includes strong working capital, current ratios, and debt to equity ratios.
- People: “Invest in your people and have fun with your team.” This will help to grow and develop your people and increase their loyalty. “Especially important is leadership training and development for the present and future leaders of your company.”
- Plan: “Involve your team in strategic planning activities. Continually test your vision and mission. And never compromise on your core values.”
- Sale Process: “Work with good M&A specialists, tax, and legal advisors who can guide you through the process, whether you’re buying or selling. They’re expensive but worth every penny.”
Larry’s philosophy is simply this: “Winners make it happen while losers let it happen.” Take control of your selling process because it’s more complex and more emotional than the everyday running of your business.
Here are the high-level steps to selling your business. The more you plan and prepare, the more valuable your business will be, and the faster the transaction can go.
The main steps in selling your business include:
- Building your team of advisors—M&A, tax, legal—so they can ensure your valuation is maximized, your structure is optimized for tax, and your company is attractive to a potential acquirer. It might take two years to clean up your tax structure so start now.
- Optimizing the valuation and attractiveness of your business to an ideal buyer. The more time you have, the more you can increase the valuation by:
- Refining strategies to create a sustainable competitive advantage,
- Increasing operational effectiveness to increase capacity, and
- Improving financial results that drive EBITDA and free cash flow.
- Remember, an accountant’s valuation is the price floor in a sale to a third party, not the ceiling. A buyer always prepares their own valuation that also includes their upside from integration and not just your historical results.
- Do not automatically assume your business is only worth a multiple of several years historical earnings before interest, tax, depreciation and amortization (EBITDA), although that may be the formula to a financial buyer who focuses on the past. Your value will likely be worth much more to a strategic buyer who focuses on the future.
- Determining who to sell to, because you’ve got options. The list includes:
- Your family and employees. They know your customers and the business, but don’t have deep pockets, and you’ll likely need to finance them, so you give up control but still have risk.
- Financial buyers such as PFM Capital, Westcap or Westbridge Capital or others in Saskatchewan. They will leave management in place, they can fund a partial or full exit, support a management buyout, provide working capital, and enhance governance and strategy. However, they may want to exit in a few years, so you’ll need to find another buyer.
- Strategic buyers such as major customers or larger competitors. They have deep pockets and are often willing to pay more because they will gain more, they may or may not need all your executive team, they may change the culture, and you may not like working for someone, although it’s temporary.
You only sell your business once. It’s a complex and emotional process. Therefore, take control, plan ahead and work with experts who will help you to optimize the value of your business and achieve a successful sale. And one final note: the terms and conditions are always more important than the price.
