CANADA
Is Your Business Ready
To Be Sold?
|
|
I recently attended a conference of
the Alliance of Merger and Acquisition Advisors in
He stated that in his discussions
with a great number of advisors in the M&A field that only 1 in 10 business
owners receives a price anywhere close to the figure they want and/or expect to
receive for their business. He also
mentioned that the vast majority of owners aren’t ready to sell their business. I thought there was a very important and
powerful message in what he was saying - so much so, that I decided to make it
the topic of discussion in this issue of ValuationVIEWS.
Lets just think about the first
part of the above paragraph – 1 in 10 owners gets paid what they wanted for
their business so that means that 90% of you will NOT receive the price you
want when it comes time to sell your business – WOW!! I hope that got your attention because
there’s a lot of money being left on the table out there. By the way, my own experience suggests that
he was pretty much right on the mark with those figures.
The bigger question is “why aren’t
owners getting their price?” Is it
negotiating style, lack of a market for the shares of a business, unrealistic
owner expectations, bad timing or is it something else? Of course, it’s a little bit of all of the
above but the two biggest issues are bad timing (from the owner’s perspective)
and the lack of a meaningful performance measurement system.
Let’s talk about timing. By now you’ve probably seen the graphic
depiction of the Business Life Cycle many times over (please see next page) –
at what stage do you believe owners would maximize their return on their
investment in their businesses? I would
suggest at the tail end of the Growth phase or early in the Maturity
stage. What stage do you think most
owners are at when they decide to sell their business?
The majority try to sell at the
Decline stage because in fact they haven’t recognized that their business is in
that stage. What frequently happens is
the owner loses some of their enthusiasm for the business and as a result many
of things that they used to do don’t get done.
Frequently the owner hasn’t taken the time to devise or implement
systems that allow them to become redundant to the business.
Business Life Cycle
(Figure 1)
Start-up Growth Maturity Decline
The problem with misidentifying the
stage that a business is at frequently is a function of the lack of meaningful
performance measurements. This becomes
an exercise in managing what you can’t measure.
There are many leading indicators
out there that could provide you with a sense of where your business is in its
life cycle but if you don’t take the time to determine which ones are relevant
to your business you could easily miss your opportunity.
Sophisticated buyers know how to
dissect a financial statement as well as understand and interpret the
non-financial indicators in your industry.
If you aren’t armed with the data to support your price then you are
giving up control of your own destiny (at least as far as the sale price of
your business is concerned).
Your RAN ONE accountant can assist
you in establishing and monitoring your company’s key performance indicators
and in the development and implementation of the systems you are going to need
to sustain the growth of your business.
The choice is yours whether you are part of the happy 10% or the less
satisfied remainder.
