The Business Development Bank of Canada (BDC) states that roughly 40% of Canadian business owners are likely to retire within the next three years. Considering that nearly half of Canada’s GDP stems from small to medium-sized businesses, the Canadian economy is set to go through a tremendous transition in the years ahead.
From a national perspective, one of the critical questions we face is who will be taking over these businesses? In their 2017 report entitled “The Coming Wave of Business Transitions in Canada”, BDC found that over 20% of the business owners polled expected to shut down and liquidate their businesses in order to retire. If true, this could result in a substantial loss of employment and economic value.
For most business owners facing retirement, selling their business would be a far preferable outcome compared to closing through liquidation. Two of the main questions faced by these owners are: How can I prepare my business for sale? And what kind of buyer will be best for my business?
There are many steps business owners can take to prepare their business for sale. To begin with, buyers will look for clarity in their financial statements. Most small and medium-sized businesses do their books in-house, which can cause them to vary from mainstream accounting standards. Efforts to ‘clean up’ financial statements to make them more professional and easy to read will be appreciated by potential buyers.
Business owners can also prepare by making their business less personally reliant on them as an owner. Training employees to take over more of their managerial responsibilities is a great way to position their company for a successful sale. This reduces the risk of customers leaving the business after the retiring owner stops being personally involved.
There is also the question of what kind of buyer owners want for their business. Investment firms like private equity funds may have deep pockets, but they often employ aggressive strategies such as laying off staff and attempting to ‘flip’ the business within a few years of the purchase. It is important for retiring owners to understand whether the buyer of their business will act in a way that is respectful of their legacy, customers, and staff.
Guest post by Jason Fernando of Voyager Holdings Ltd.
Posted on November 27, 2019