The grocery store has been in John's family nearly 50 years now, central to the new life they began when they moved to Canada in the early 50s. He remembers them working long and hard to make enough to support him and his sister.
It was only natural that John took over the business when it got too much for his aging father. The store provided John and his wife with enough income to buy a modest house and put their own son through university.
John never gave much thought to retiring – he enjoyed his customers too much. But his health has begun to fail and his wife is very worried. She wants him to enjoy other things in life before it's too late. But what about their business? They can't just close the doors.
A thousand miles away, another business owner is also pondering his future.
Jack started his marine and land power sport dealership 20 years ago. Now 50, he brings in nearly $3 million annually in revenue and owns his showroom and service facility to boot.
Determination, hard work and business savvy have all played a part in Jack's success. He intends to use the same smarts to plan out his retirement. Jack wants to see more of the world, and sail wherever and whenever his inclination takes him. He plans to use the next five years to structure his business to fund it all.
The details in these two scenarios are representative of the issues that small business owners face when initiating the selling of a business. Traditionally, small businesses were passed down to the next generation, “passively” sold within the local market or closed down. Today, there are fewer businesses being passed down.
Sooner or later business owners must sell or exit their business. In Canada, some 20% of small businesses are in transition at any given time.
Here’s an overview of the five-step process we’ve found effective in selling a business.
The Sunbelt five-step process for selling a business
1) Produce a detailed valuation of the business to identify the Most Probable Selling Price using appropriate valuation methodologies. This represents a reasonable price, factoring the true earnings and what the market is willing to pay.
2) Prepare key documents:
- a one-page “blind” Business Summary that highlights the key attributes of the business without identifying the business name or location;
- a Confidential Business Overview that includes a history and detailed analysis of the business, products and or services, markets, industry, staff, strengths, weaknesses, opportunities and threats;
- a Confidential Business Profile that includes financial and operating information, issued only to buyers we feel are serious and have signed a confidentiality agreement.
3) Confidentially market the business. A broker with a well-established firm can expose the opportunity to hundreds of prospective buyers without employees, customers or a competitors knowing the business is for sale. Advertising won't specifically identify the business.
4) Screen inquiries to confirm resources and potential for assuming your business and manage negotiations, which require give and take on both sides.
5) Accept the best offer and complete the sale, ironing out issues during due diligence.
Protect your wealth
Should you sell your business now or wait a few years?
Start by knowing what your business is worth. Complete step one, Business Valuation, with your business broker to determine if selling now will provide sufficient proceeds to support your retirement. Identify the value drivers for your business, the changes and improvements to make over the next few years to add value and the professionals to help you ensure the best structuring from a tax and change-of-ownership perspective.
Contact your local Sunbelt office to speak with a broker in complete confidence and without obligation.