It’s fast becoming the elephant in the room for millions of business owners. “As baby boomers retire, they’re turning over their businesses to the next generation — some reluctantly, sometimes too quickly, and often with less preparation and insight than they should,” says Chartered Professional Accountant J. Douglas McLarty, FCPA, FCA, CFP, TEP in Ottawa.
A specialist who helps businesses with succession planning, McLarty has seen many missed opportunities when owners don’t have good strategies in place for exiting their enterprises. Here are some of his most important tips for getting the most value for the business that you have probably spent a lifetime building.
Run your business like you plan to sell it tomorrow – The most important thing a business owner can do to ensure he or she gets the best price for their company is to have it running as well as possible.
Start planning three-to-five years before you intend to leave – For businesses of any substance, McLarty says it usually takes this long to identify, mentor and develop successors, come up with solutions to turnover problems, and address any issues — especially in family-owned or family-run businesses.
Make a Chartered Business Valuator part of your transition team – Chartered Business Valuators are professionals who use standard models and measurements in their appraisals. They look at what your business has done, its cash flow, profitability and other factors that will stand up to the scrutiny of any prospect’s advisors or evaluators.
Treat family businesses as special businesses – In family businesses, understandably, the succession process can be much more complicated. Often, there are social and relationship issues to be worked through, as well as legal and financial ones, McLarty says. Having enough time to properly work through the process becomes especially important when the new generation needs to develop additional skills, and advisors may have to rely on different sorts of tools to build consensus among family members.
Consider homegrown talent – Are there long-time, competent staff members who may be interested in taking over the business? Those who know your enterprise, customers and the industry can be good prospects. Often these employees either have their own client followings and/or are so integral to the operation that customers may follow them if they decide to leave.
It’s about more than money – In most cases, your Chartered Professional Accountant or Chartered Business Valuator will make sure that anyone looking to buy your business readily sees all the successful elements that contribute to your solid financial picture, like goodwill, community involvement and loyal, skilled employees.
Tell all there is to tell – The Purchase and Sale Agreement must cover off any existing or imminent legal problems, changes in suppliers or customers that can impact the business, and even staff evaluation issues, for which confidentiality agreements can be requested from the prospective buyers.
Keep an open mind – Remain adaptable and look at alternative avenues and solutions to problems. A willingness to consider different funding options, timetables or even qualified purchasers can open whole new possibilities for profit. Be clear about what you want to accomplish. Then, engage advisors with the training and experience in the areas you need, and let them show you how to get to where you want to go.
© 2015 Chartered Professional Accountants of Ontario