Will you be able to sell your company?

Will the Great Boomer Business Retirement Migration Actually Happen?

“We’re ready to sell. You know, we’ve kind of done all we can and we’re tired. It’s time for some new blood. So my partner and I want $5 million out of the business. So what are our chances?”

We listened to Trevor a proud and accomplished silver haired 59 year old , the owner of a 15 million dollar industrial company and wondered whether he and his 58 year old partner, Paul realized what getting that exit buyout would require on their part.

“There is only one way you are going to find a buyer willing to invest that much in your business. It’s called Valuation Planning and it may take 2-3 years to complete before you’re ready to sell.” I looked over
at my consulting partners as we watched Paul and Trevor’s faces fall. We had seen this reaction many times before.

There is nothing more painful than seeing successful business owners suddenly realize their retirement dreams might remain only a fantasy.

With every phase of life, the baby boomers have had a profound influence on the movement of money across most aspects of our economy. But in their next phase of development will their luck with creating wealth run
out?

The numbers suggesting this is indeed possible are staggering.

By 2011, the first of 70 million boomers are going to turn 65 years old. There are more than 26 million businesses in North America, and 50 percent are owned by boomers, according to the Small Business Administration. And 7 out of 10 of these owners will want to sell their business over the next 10 years, according to the Association for Mergers and Acquisitions Advisors.

That represents $10 trillion in retirement value and 75 percent of that $10 trillion may not be realized according to Richard Jackim in his book “The Ten Trillion Opportunity – Designing Successful Exit Strategies for Middle Market Business Owners”.

Industry Canada and the US Small Business Administration are very concerned that boomer business owners are not paying attention to these statistics and secondly do not have a good understanding of what it takes to sell a business. They have alerted city economic development groups across the country like the City of Nanaimo, BC and the city of Chicago, IL who are now trying to come up with ways to alert owners and help them to get ready.

They are planning for the future to ensure their communities stay economically buoyant according to Jason Boyce in an article entitled “Get Ready for the Big One: Succession Facilitation & the Coming Demographic Wave of Change” published in Making Waves Magazine.

Spirit West Management advises owners what must be done to 
set their house in order.

“It’s much more than succession planning,”
says Lorraine Rieger McGregor, CEO and partner in Spirit West
Management. “It involves reorganizing the company so that an investor
sees the value. That sounds easy but really what is involved is to stand
 in the shoes of a buyer and ask yourself, would I buy this company? Can
I easily see that it will continue to grow if the owner leaves so that I
will benefit as the investor? Succession planning is all about how you
will retire. Valuation planning is all about how the business will be a
continued success after the owners leave, which is all important to buyers.”

Rieger McGregor of Spirit West offers these five tips for business
owners who are starting to think about finding a buyer in the coming
years. First Tip? Start NOW.

1. Change Your Mind Set
Let go of your business now, emotionally. It’s not a reflection of who
you are; it is an asset that has investment value. The more you can view
your business from the eyes of an investor, the easier it will be to
make the transition to improving it so it will be attractive to
investors. This is not to say stop being passionate about your business,
it says let it stand on its own two feet.

2. Think Like a Buyer
If you were to buy this company tomorrow, what clues would tell you that
it would continue to be a successful company? What would you look for to
tell you that if you didn’t know anything about the company? Buyers want
to see past evidence of growth: The plans, the result and the effect on
profits. They want to know the industries your company sells to are hale
and hearty especially in this challenging economy. Are your customers
loyal, buying more regularly and getting your best solutions? Do you
have a sales pipeline leading to increased revenue? What tools do you
use for decision making? All of these things show a buyer you run a
tight ship.

3. Transfer Knowledge and Power
Who will run the company if you’re not there? Can you disappear for six
weeks right now and be sure the company will still be humming when you
return? If not, you’ve got work to do. You may need a management team or
a CEO. You may need to start training and trusting your own people a lot
more than you do now. When you walk into your operation is the
atmosphere tighter than a drum or congenial, tense or excited? How come?

4. Clean Up the Files
For the next three years you’ve got to show increasing profit margins in
a consistent, steady uphill line. That means you will have to clean out
the personal items in your expense account, know where you are missing
the mark and losing money and fix the problem and then set goals and
targets that your team is accountable for. Then look at your agreements
and contracts and get them reviewed by a lawyer. Do your supply
agreements restrict geographic territory or activities? Do you have the
best suppliers on your team? Are your shareholder and management
agreements tight or misunderstood? Get the right kind of help to sort
these problems out.

5. Focus on Growth
When was the last time you expanded your market place, launched a new
product or rethought your solution set to better meet customer needs? Is
it easy for customers to switch from your product to some other company’s?
If so, you better find out why. Get to know your target market. Are
you solving their problems in the right way? There is opportunity for a
profit in every hassle you uncover in their business.

Buyers want to see a healthy pipeline of orders and opportunities for
the future. “This is not meant to tell owners what they’ve built isn’t
good enough.” Says Rieger McGregor. “It’s to let owners know that there
will be a huge number of businesses all wanting to sell in the coming
years. Investors will have their choice of plum opportunities and will
reject the rest. They will pick the investments where their risks of
failure have been reduced. Owners need to know how to make that sense of
certainty obvious and reliable.”

It can take 2-3 years to sort out some of these issues. The time flies 
fast. Owners will be resistant to this effort: There’s a business to run
and there might not be “know how” or time to try and get these ‘value’
improvements done properly and without business disruption.

Valuation
 planning and execution is something owners will need help with. They may
 need a consultant that can help them plan and execute these changes,
their accountant to help them with tax strategies and their account
files, a lawyer to iron out the agreements and contracts and a board of
advisors to keep them accountable.

If owners want to see their retirement plans realized, the time is now. By 2011, there will be a lot more competitors.

And what of Paul and Trevor. They are one year into their reorganization and have found a new passion for their business.

And they aren’t tired anymore.

8 Rules for Preparing Your Company for Sale

1. Start Planning Early - 2-4 years before shareholders or partners want to sell. It can take that long for the changes described and recommended below to be made.

2. Know what type of Investor or Buyer is Best Suited for Your Company – Want to sell to your employees? Sell to another company in your industry or part of your supply chain? Want the company to continue as a viable going concern after you leave ? All these options require a different game plan to achieve the desired goal. Understand which type of buyer/investor is right for your circumstances and how to best position the company so that this exit event occurs.

3. Put a Growth Strategy in Place Now – Despite our tough economic times, a growth strategy is imperative to being able to realize a future liquidiation event, no matter what type of buyer/investor you are targeting.

4. Recognize the Buyer/Investor is Acquiring the Future – More than ever now, they are not buying past performance, they are buying the future performance of the management team’s ability to deliver on the promise of the growth strategy. So the growth strategy has to be be well under way and producing results by the time you are ready to sell. The management team that implements this strategy are the people that will be staying with the firm after the primary shareholders leave.

5. Recognize Your Role as Owner Has Changed – If you are planning to sell, you need think of yourself now as an investor, not an owner and certainly not a manager. Your knowledge, key relationships and abilities have to be transferred to and found in your management team now, not the day after you leave.  You are not your company.

6. Deliver What You Promise – The number of companies on the market looking for exit strategies will double as boomers retire over the next ten years. Your company will have to stand out from the pack. Your company should have an outstanding solution or product offering and the financial performance in the balance sheet and income statement to prove it out. Your internal systems deliver exactly what is promised to customers in a way that makes it hassle free, unique, of high value and delivers recurring revenue. Check in with your target market. What do they think about your offering? Set up key performance indicators to manage toward the future, rather than viewing only through the rearview mirror.

7. Difficult People? Conflicted Workplace Culture? Growth and Change Will Be Almost Impossible. If you’ve got some rub points that make delivering customer value or financial performance unreliable, now is the time to deal with them , not later. If you’re struggling to change entrenched ways of working, poor performance, lack of alignment between strategy and action, then get help sorting it out. Learn how to take a different approach and get to the heart of the issues that block change, growth and ultimately profitability. There is a much better way which is far less painful.

8. Get the Right Advisors on Board – You will need an accounting group familiar with exit transactions and tax issues, a legal firm able to prepare the foundation for an acquisition so the deal goes through smoothly without skeletons jumping out at inopportune times and investment advisors to help package the company. Know who to get on board, how to find them and strategize when you bring them in.

You may need help with some of these Valuation Planning Steps. Get it sooner rather than later. For a private seminar on any or all of these topics, please contact us.

Vancouver Sun on Boomers Preparing to Sell their Businesses

Harvey Enchin of the Vancouver Sun did a story on the fact that boomer business owners say they want to retire in the next three to five years, which means selling their businesses but they have not prepared their companies to get the highest valuation. Here’s the story. http://www.canada.com/vancouversun/columnists/story.html?id=c9388f05-f1c7-4960-812f-b6c8b15b454a Why do you think business owners are not doing adequate preparation to make their businesses attractive to sell? Add a comment below.

CBC talking about boomer business owners unprepared to sell their companies

It seems that slowly the word is getting out to business owners that they had better get the help they need to position their companies correctly in order to be ready to retire. The CBC just announced RBC’s latest study on the strange trend that owners don’t know how and are not thinking about how to extract the wealth they have built up in their companies. You can read about the latest study here.

Business Owners Must Think Like Investors

Business owners today are facing a perfect storm of controllable uncontrollable variables. But according to the Canadian Federation of Independent Business, 52% don’t know they need to take themselves out of harms way.

Think of the situation before Hurricaine Katrina: some people believed it was important to leave the New Orleans area, and some did not. Those that did not suffered and the rest of us were left wondering what it was that didn’t compel them leave New Orleans when they had the chance. Today, three years after Katrina, when the forecasters yell Hurricaine, the residents along the Gulf Coast don’t think twice, they go.

What’s going to galvanize business owners into getting ready to avoid the perfect storm?

The boomer bulge, born 1946 through 1962 will spend the next ten to fifteen years extracting their wealth out of the economy to put to other uses. Or I should say, attempting to extract their share of their company’s value. The only problem is, owners have not prepared their businesses so that they are attractive for investors to acquire them.

A perfect storm of influences will increase the supply of companies for sale right when the need is greatest for investors to buy them. The storm is manageable, but only if owners take preventive action now to be ready. It can take 2-3 years to put the company on a growth plan. It’s more than just slapping a coat of paint on and installing granite counters.

Here are the big clouds on the horizon for this perfect storm:

1. The economy is in a decline;

2. There are more than 1.7 million businesses in Canada. 50% are owned by boomers. 500,000 will want to sell. In any given year in Canada, roughly 25,000 businesses change hands.

3. Owners don’t like thinking about the day they won’t own the business

4. Owners don’t know who to talk to. It’s understandable that they don’t talk about it. They don’t want competitors or employees to find out they’re thinking of transitioning their ownership.

Business owners need to take heed and learn how to see their organizations through the eyes of an investor: get to know the key indicators they look for and make sure they are instilled throughout the company. Remember, an investor buys the future certainty of profitability, rather than the past. For every foggy indicator, the risk increases and so the price they are willing to pay decreases.

Selling a Business Case Studies

Why sell a business?

Our clients have myriad reasons.

One conglomerate bought several in a bundle and one of them did not fit their strategic direction. Another did want the responsibility of running it anymore.

When you are ready to sell there are suddenly a lot more things to think about than most owners would have ever imagined.

Getting Ready for Sale Case Studies

• If we want $8 million for our company when we sell it, what do we have to do now to get that price?
• Lame Duck or Worthwhile Investment?
• It’s Time to Sell

It’s Time to Sell

Case Study Project Description

An owner had spent ten years building a manufacturing company. He is struggling with growth and really liked the technical side of the business but wanted someone else to run the rest of the company and take it to the next level of growth.

Project Problem

How do you find the right partner and bring them in as an owner? Do you bring in investors? Do you hire professional management who manages you, the owner? Do you go public? Do you get bank financing for growth capital and equity financing from a new investor/partner?

Solution

The issues described are complicated for any business owner. As an owner, there is freedom to make decisions they way they want, and the trade off is keeping the status quo alive. Change is required. To bring in a professional manager means to let go of control as an owner but possibly enjoy larger shareholder returns brought by an able bodied team who wants to do what the owner doesn’t. By bringing in a shareholder partner, there are all kinds of chemistry and fit issues that money doesn’t necessarily cure. What works for one person in each of these scenarios might not work for other people.

Reviewing all the options with this owner, we explored the merits of each option including going public with a larger group of people. In each case finding someone who wanted to be in that business, had the financial capabilities and was good fit with the current owner proved difficult. Business plans were built, valuations done, opportunities presented but the right fit did not materialize. Standing aside for change is difficult when you’ve run the show the way you want for years.

Result

In the end, the owner decided to retain more middle managers who could build the market out, rather than trying to sell the company.

Lame Duck or Worthwhile Investment?

Project Description

This old-line manufacturer was acquired from it’s original parent company with several other consumer-based companies. The acquirer was in business to business products and wanted to re-sell the company as soon a possible.

Project Problem

When a large company gets acquired, this signals to the management team in the acquired company that change is about to occur. Many managers take this as an opportunity to leave. For this manufacturer, the entire top level of management left all at the same time. There was no one left at the helm and the acquiring company worked fast to second one of their executives to become the new president. But who was going to move into management operations? The new president went out to talk to the remaining employees and hand picked four middle managers promoting them to the top spots in the company. Their top selling sales person became the VP of Sales. The controller became the Group Manager. The manufacturing manager became VP of operations and a young woman in the marketing department who had a lot of creative ideas became the VP of Marketing.

In a company used to getting promotions based on seniority, the new president’s choices left a lot of disgruntled long time employees fuming on the sidelines. Was the company ready to be sold?

Solution

We were asked to come in and turn these new recruits into a leadership team who had to become responsible for chopping costs, shrinking the product line, staying competitive and forging a growth pipeline. The reward for doing all that? The team was told they would either be saved from the chopping block and kept as a unit for the conglomerate or spun out once again.

The team had no ability to work collaboratively. In this culture, the sales person had never visited the manufacturing floor. The people who made the product he sold did not know him. The marketing department had never gone to talk to the distributors who sold their product to understand the huge variety of target markets they worked with. The manufacturers had not talked to the distributors to see what types of products were in demand. The controller had never led a team or run a meeting. Collectively, they did not know how to make the decisions expected of them. The pressure was intense, the time frame short.

We worked individually and as a group with each, showing them how to change their attitudes and approaches toward building relationships across functional lines, with each other and with the market place. We challenged their thinking and entrenched methods of doing things in the same way and getting poor results. We focused on how to have the kinds of conversations that create rapport and results. Over a year period, this group of people dealt with downsizing, competitive threats, internal strife and the constant uncertainty about their future and found it in themselves to collaborate on all issues.

The manufacturing VP visited distributors. The VP of Sales got to know the guys on the factory floor. The marketing VP learned how to work with multiple target markets. The controller faced his limitations and steered the group through the quagmire of issues anyway.

Result

Within 18 months the team had achieved their goals. The conglomerate was impressed. They had turned the company around and now were prime candidates to be sold. This irony was not lost on the team. With the great results they were now an attractive business and yet faced an uncertain future yet again. The company was acquired quickly and the conglomerate achieved their return on investment. And in the end, history repeated itself: only one member of the leadership team stayed on with the new owner.

If we want $8 million for our company when we sell it, what do we have to do now to get that price?

Case Study Project Description

Two partners had built a sizeable operation catering to the booming construction market. Sales were double digit and growth was outpacing their ability to manage resources. There was a tight labor market and experienced people were in short supply.

Project Problem

The partners were nearing an age when they had to start thinking about succession planning. And frankly, the stress of keeping it all together without the right people was taking a toll on their health and their working relationship. What would it take to sell they wondered?

Their immediate problem seemed to be their frustration at the lack of self responsibility amongst their managers and site staff. Tempers often flared. Perhaps this was leading to the desire to sell?

Solution

We looked at their entire operation from the people issues right through to the way they estimated and sold jobs. Each year, despite increases in revenues and more jobs coming their way, the profit margin was slipping. We showed them how this fluctuating profit margin would affect the sales price. We were able to pinpoint the reasons for the fluctuations and began to set up a key performance indicator system. Reorganizing the company’s roles and responsibilities to get this information reported was critical. The reporting responsibility would be assigned to teams and individuals. A new incentive system would be awarded based on managers’ ability to produce the indicators in a timely manner.

On the people front, we challenged the way the senior managers and owners communicated and taught them tools to start making adjustments in their attitudes, reactions and styles. Managers started to learn how to work to their own strengths and focus on amplifying what they did do well. The reorganization opened up promotion opportunities and suddenly with good role descriptions and incentives, people within the organization were applying. The owners were coached in how to collect useful information and make decisions together while respecting each other’s differences and ways of working. They split up duties so that each played to their strengths.

Result

It will probably take 2-3 years for their profit margins to improve and show year to year consistency and growth and possibly four to seven years to grow the company to the level that would make it worthwhile enough for the price the partners want for it. They have settled into this realization and are already seeing improvement in staff attitudes and the way work gets done, which has brought down the stress levels considerably.

Variances are declining and the focus is on learning to build a better management system so that projects flow through the company in the most cost effective manner. The key performance indicators will soon give the owners the freedom to be away from the office more often as they will have critical decision making data. The management performance system will allow them to build trust and capability through the ranks so that they don’t have to be there all the time. These types of changes are exactly what an investor wants to see.