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The process of selling your business

9/30/2014

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By Ryan Jorden

Most people are unsuccessful when it comes to selling their business on their own. They simply aren't aware of what common mistakes to avoid and how to best communicate with potential buyers. At VR, we've honed our process over many years to provide you with the best chance to sell your business for the most amount of money in the least amount of time. Here's how we do it:


1.  Getting to know each other

The process of selling your business is firmly entrenched in relationships from the moment you begin. Therefore, it's very important that we take the time to understand what your personal and business goals are, why you're interested in selling and what has contributed to the success of your business. This all leads us to a greater understanding of your business, what intrinsic factors are driving the value, what might motivate a buyer to purchase it and who that buyer may be. 

Additionally, it's important that you have a firm understanding of what makes our process successful so you can determine if we're the best choice to work with you. We will answer all of your questions and explain the process to you in detail so you know where you're at and where we go together from here. The expectations we set for each other early on will help set the table for a smooth and successful sale.


2.  Valuation

As you may be aware, the accountant prepared financials of your business only tell one side of the story and do not represent the true earnings of your business. Therefore it's important to have a professional market valuation completed that can show true cash flow and determine the most probable selling price of your business. This fair market assessment will provide us with a firm foundation to justify the value of your business to a buyer, their accountant and their lender.  

You don't want to be asking too much and thus fail to sell, nor do you want to underestimate the value of your business and leave hard-earned money on the table. At the end of the day, there isn't anything more relevant to whether or not you actually sell your business than what your asking price is. 


3.  Marketing & Finding the Buyer

After the results of the valuation have been discussed and you've made the decision to engage, we will then begin the preparation of your confidential marketing package. It is a professional presentation of information that is reserved for the eyes of a qualified, serious buyer. It will provide them with the data they require to understand your business and proceed with an offer to purchase. 

We also require that all potential buyers sign a strict Non-Disclosure Agreement, complete a Buyer Profile and speak with us at length so we can determine that they have the ability to purchase and successfully operate your business. Nobody will be introduced to your business without the necessary skills, interest, qualifications, experience and financing. 

The key in selling any business is showing it to the right person. To locate these buyers, we utilize our international database of qualified buyers, as well as generically listing it on the busiest 'business for sale' websites. Depending on your business or industry, we may also confidentially approach potential buyers directly to let them know we're representing an opportunity that may be of interest.

A larger number of qualified buyers mean a higher price for your business. Because of our dominance in the marketplace, we receive a few hundred buyer inquiries a month and currently have a considerable backlog of qualified prospects searching for businesses.


4.  Meeting the Buyer

All initial showings of your business will be conducted through our secure Virtual Data Room. This allows us to deal with potential buyers from all over the world. Only qualified buyers that we believe are a good fit and have the financial means to complete the transaction will be provided "view only" access to your confidential marketing package. This gives them an opportunity to learn about your business and generate questions in preparation for meeting you in person. 

Meeting the buyer in person will allow you to start building a relationship with them immediately and gives you both an opportunity to ask each other questions. An initial meeting will typically last 60 to 90 minutes and be hosted after hours at the business location. A business opportunity becomes more real to a potential buyer when they have the chance to meet you and view the facility location in person.


5.  Offer to Purchase / Due Diligence / Closing

Once a serious buyer has been identified and qualified, we will assist in facilitating the negotiations. We know how to structure transactions to maximize the chance of a successful transition that works for all parties. We will work with the buyer to prepare the offer and counsel you on your options of accepting, countering or rejecting the offer and on what has to be completed before closing can take place.   

Once a conditional agreement is in place, the buyer will get increased access to information about your business. This due diligence period allows for them and their counsel (accountant, lawyer, lender) to verify the information that they've been presented. We will coordinate the the flow of information in an objective and professional manner and provide both lawyers with the documentation they require. 

We will also work with the landlord to assign the lease while your lawyer is drafting up the remaining documents that form the Final Purchase Agreement. This typically includes the non-compete agreement, promissory note and employment/consulting agreement.  Once all of the conditions have been satisfied, and paperwork completed, money will be exchanged and the transition of ownership will be complete.

If you're thinking of selling your business, we would be pleased to answer your questions and assist you with this process. Let us put our expertise to work for you!



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Ryan Jorden is the Managing Partner with VR Business Brokers in Calgary, Alberta, where he specializes in valuating and facilitating the sale of privately held businesses. You can reach him confidentially at ryan@vralta.com or visit our website to learn more. We can also connect on Twitter and Google+.
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READY TO RETIRE?

9/18/2014

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WHAT IS THERE TO GET READY FOR?
A large bulk of our working population is now moving towards, entering, or already in retirement. Statistically they will retire earlier, wealthier, and live longer than prior generations. Retirement has drastically changed over the past few decades for these reasons. Gone is the notion of retirement as a perhaps short but permanent vacation. It is now more a marathon than a sprint: based on life expectancy alone Canadians retiring at 65 can expect to live twenty years on average. Researchers, psychologists, and therapists are seeing people stuck in a post-retirement void, their social networks disrupted, confidence diminished, and routines lacking. Depression and divorce are on the rise in retirees faster than any other segment of the population.

THE STAGES OF RETIREMENT
Much like other life-changing events such as marriage or divorce, retirement is now recognized as a long period of emotional adjustment in terms of our relationships with others and perception of ourselves. Although the names vary, psychologists and researchers are attempting to define stages of this transition, namely pre-retirement planning and anticipation, the initial euphoria of The Big Day, the Honeymoon phase, the disenchantment that comes after the initial high, and the reorientation to a new routine. Naming these stages can help guide those planning retirement or who have retired. 

PLAN AND PREPARE
Our working lives start a phase of accumulation: get a car, a house, maybe a spouse, some children, recreation toys, and property. Although saving from the start is important, it is only later in our careers, as we get a handle on our expenses and our incomes are rising, that we establish the bulk of our saving for retirement. As retirement nears we tend to look ahead and plan for its bigger components. Where will we live? Will we have pension income? How much savings do we need to provide for what the income cannot? Often overlooked are more personal questions related to what we will do with the sudden surplus of time, lack of work-related socialization, and loss of structure and routine. 

THE BIG EVENT
Retirement comes with a round of smiles, handshakes, farewell parties, and celebrations. Some are muted and sporadic; others are gala events comparable to weddings. This cessation of employment is the shortest stage in this process. 

THE HONEYMOON
Once the retirement celebrations are over we enter a period when the newly-retired start doing all of those things they were looking forward to doing once they stopped working. This time of travel, hobbies, visits to relatives, and lazy mornings is also referred to as the drunken sailor stage of retirement, a relaxation bender, if you will. 

...NOW WHAT?
After the initial emotional high of the honeymoon many retirees must deal with a feeling of letdown. Getting back to the business of living can lead to a creeping up of feelings of boredom, uselessness, and disenchantment. The objective of a successful retirement is to retire to something instead of from something. Retirees must build a new sense of self and find new purpose. We remain healthier and happier when we have purpose, whether that translates to a second career, volunteer activities, deeper involvement with our families, or building social networks outside of work. Finding truly meaningful engagement in retirement may come naturally, or take longer than expected. Planning, experimenting, and involving those close to us in this reorientation of our lifestyles are all necessary. Financial planning is but a part of this picture; an early start and regular review of your financial situation will ensure it is not a deciding factor in what your retirement looks like once it arrives.


VR Business Brokers would like to thank Nicholas J. Miazek CFP for his contribution as a Guest Blogger on our site. Nick is a Vice President and Financial Planner with Fiera Capital Private Wealth in Calgary, Alberta, where he provides customized wealth management solutions and implementation services. Nicholas can be reached at nmiazek@fieracapital.com or (403) 699-9000.
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FAQ For Buyers Purchasing A Small Business

9/8/2014

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By Ryan Jorden

You can no longer suppress your entrepreneurial spirit and the time has come to fulfill your dream of business ownership. What questions should you be asking? Unfortunately, most small businesses for sale are being represented by the owner, so the process of fact-finding can often turn into a frustrating, adversarial battle with less than willing participants. As a business broker, my role is to scatter the fog of war by ensuring trust and transparency are maintained throughout the entire process. This allows for an objective and accurate analysis of the business on behalf of any potential buyer and their lawyer, accountant and lender. I need to know about a business before I'll allow someone to put their life savings into it, so it is crucial for me to seek answers to the same questions every buyer should be asking. Here are some of the most important ones:


1. "What are the true earnings?"

As you may be aware, the accountant prepared financials only tell one side of the story. They're often geared to minimize earnings and reduce or eliminate the taxes paid on declared net income. It is very common for small business owners to enjoy financial benefits that have been attributed to the business, but are in fact personal expenditures. Therefore the only way to accurately understand the true earnings and benefit to the owner is by analyzing a normalized or recast set of financials.

Small businesses that are owner-operated are best understood through seller's discretionary earnings (SDE), which is comprised of the net income with interest, taxes, depreciation & amortization added back to it, plus any one-time or non-recurring expenses, as well as the fair market wage of one owner working in the business. Certain industries, or businesses with a higher level of earnings and a full management team in place, will be better understood through an analysis of EBITDA or EBIT.

Either way, you must have knowledge of what the owner is paying themselves compared to what it would cost for them to replace their role with an employee. Your business broker and accountant can assist you in better understanding what's really going on from a cash flow perspective.



2. "Can this business survive in your absence?"

There are many small businesses that are so entwined with the owner that it's impossible to determine where one ends and the other begins. Their fear of giving up any control over the daily operations has resulted in a business that would not survive a transition. Their supplier and client relationships are dependent upon them, their bookkeeping and processes are in their head, all of their staff are family, etc. In fact, if you took them out of the business for a week it would start falling apart immediately.

Some of the best businesses I've dealt with were designed with the owner's exit in mind from the very beginning. This has resulted in management in place to run the day to day operations of the business, systems and processes that the staff knows and follows, key people in place that deal with suppliers and clients, and everything else that eases a transition. You need the business to function in their absence after the sale and the skills a new buyer brings to the table should make up the difference after the seller has been plucked out of the equation.



3. "Why are you selling?"

This is the one question that every single buyer has asked, and in many ways this is the most important question I need answered for myself. I serve a process that is dependent upon needs, not wants. If a business owner does not need to sell their business, they will have a marked lack of motivation necessary to either begin or complete the process. They will disagree with a market evaluation, instead choosing to wait for some clueless traveler to meet their over-inflated asking price down the road. Or they will get cold feet somewhere during negotiations or due diligence and back out of the process. I also expect full disclosure and need to know that they're not just looking to take their problem and make it someone else's problem.

What are the main reasons a business owner will have when they need to sell their business? Stress, health issues, extreme boredom or burnout, retirement, divorce, death or transitioning to family. It's almost always a human reason, and depending upon the answer they give I may not disclose that to a buyer, but will instead allow the seller to do so if they desire. An example of this are the unfortunate cases where we meet a client who has been diagnosed with terminal cancer and they need to sell their business so the proceeds can provide for their surviving spouse. In this situation, I will not undermine their negotiating position or breach their privacy by disclosing that to a buyer.



4. "Will the seller assist with the transition?"

Very few businesses can successfully change hands without a period of training and transition. How long that lasts will be dependent upon the industry, the experience of the incoming buyer and the wishes and needs of both the buyer and the seller. We would typically expect that a complimentary 2 week training period be provided by the seller, with anything longer than that falling under a paid employment or consultation agreement. If you're pursuing a business in an industry that you have no previous ownership experience in, then it's very important to understand the exact role and length of time the seller is willing to commit to in order to ensure you get what you need for the transition to be a success.


5. "Is the seller willing to provide financing?"

There is perhaps no greater mechanism in a transaction that benefits all parties such as seller financing. I rarely meet a savvy entrepreneur that is willing to buy a business where the owner doesn't put their own money where their mouth is. It allows a buyer access to the funds required to meet an asking price and complete the purchase, in addition to bridging whatever gaps of trust and perceived risk that may be present. When a seller has some skin in the game, the banks will feel far more comfortable in extending funds, as well. The unity of interest this creates for all parties is very powerful and can often be the difference maker between a business selling or sitting on the shelf.


6. "Why should I buy an existing business?"

Startups are often tied to the idealist and romantic notion of making an entrepreneurial go of an original concept. However, the numbers never lie and most startups will die a horrible, lonely death within the first five years. The good news for you is that a business that has been around for at least five years has a greater than 90% chance of still being around in another five years. This is why I always advise people to buy an existing small business with a proven track record of success. They've established themselves within their market, fended off competitive elements, built up a trained and experienced staff, honed their systems & processes, learned from mistakes, made the necessary course corrections, formed supplier relationships and attracted an army of loyal, paying customers contributing to a healthy bottom line. They have beaten the odds and now they want to impart everything they've learned onto you. What more could you ask for?

Where you end up at is a direct result of how you begin. If you're thinking of buying a small or medium-sized business, we would be pleased to answer your questions and assist you with starting this process. Let us put our expertise to work for you!



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Ryan Jorden is the Managing Partner with VR Business Brokers in Calgary, Alberta, where he specializes in valuating and facilitating the sale of privately held businesses. You can reach him confidentially at ryan@vralta.com or visit our website to learn more. We can also connect on Twitter and Google+.

(Photo: Lord Jim, Flickr)
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