THE WAVE OF OWNERSHIP CHANGE
Series for Business Owners
5 Steps to Fair Market Value
Most owners of medium sized businesses in Canada are now in their 50’s. Over half of them have indicated, within the next 5 years, they plan to sell their business to fund retirement, the majority to an outside third party.
Selling a business is a complex task. Many owners have never been through the process before. The stakes are big - their ability to comfortably retire by securing fair market value for the business they spent most of their working lives building.
5 Steps to Fair Market Value
- Plan Early
Many owners wait too long before making the decision to sell. The business should be on strong footing to begin with which may take some time. The divestiture process itself usually takes 6-9 months through closure and the new owners often want the current owners to remain involved for a designated time period post ownership change. From start to finish, the entire transition can sometimes take several years.
- Go to market for top dollar
Management buyouts have their place but are fraught with challenges. Internal management rarely has the funds to acquire the business at market value leading to the need for financing and deferred payments over years. Buyers within the industry are positioned to pay more due to post purchase synergies, a fundamentally different valuation model. The upside for owners can be in the millions if they are prepared to go to market.
- Keep the foot on the accelerator
Some owners ease back on managing the business once they have made the decision to sell. They should do the opposite. Top dollar is secured when the business is not only profitable but growing with expansion initiatives identified and clearly in sight. Acquiring parties are more interested in “tomorrow” than “yesterday”.
- Options open through closure
Wise not to place too much reliance on one buyer throughout the divestiture process. If, for any reason, the deal doesn’t close, owners then need to start over. Going to market provides alternative buyers. Our company has completed transactions where the ‘contingency plan’, in fact, proved the best path to facilitating the liquidity event.
- Well managed and orderly process
It is important the divestiture process be managed in a fashion which minimizes time demands on owners whose interests are best served by focusing their attention on building the business. Never is that more important than when a business is being sold.
Rincroft facilitates the divestiture of medium sized businesses. Our clients are companies which are well established and profitable. Since its inception, our company has completed the sale of more than 50 business across a wide range of industries. We also provide advisory services assisting owners in building sustainable value even if they have no immediate plans to sell.
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