The coming wave of business transitions in Canada

Advantage Buyer

There is an absolutely fantastic opportunity for motivated, entrepreneurial Canadians to acquire existing small and mid-sized businesses, but it won’t last forever, and, there’s a name for it...

“Information arbitrage is an instrument for creating opportunities in the marketplace by identifying trends ahead of others and acting on them.”

BDC - Guide to buying a business

The opportunity

This is the scenario many small business sellers are facing right now, mostly due to the changing interests of the sellers.

• Four out of ten entrepreneurs in Canada are likely to leave their businesses within the next five years, the main reason they give for moving on is retirement. 
• Over half of these entrepreneurs intend to sell or transfer their business to someone outside their family. 
• Close to 50% of entrepreneurs who plan to exit their business, plan to do so within the next three years.

A recent BDC study identified the following:

“While robust financial reporting helps boost the value of a business, some owners who expect to sell to outside buyers within the next five years appear to have done little or nothing to spruce up their financial reporting. What’s more, most have not taken any action to maximize cash flow in anticipation of a sale.”

BDC - GUIDE TO BUYING A BUSINESS

This is to your advantage.

Think of it this way, imagine you have your eye on a new vehicle you’ve been dreaming about for years and the opportunity to pull the trigger on it is within reach but you need to sell your older vehicle before taking delivery. So, rather than getting your old vehicle carefully detailed, inspected, fix any mechanical issues and list it on several websites for sale, you just put it up on kijiji for a quick sale just to get it out the door, because, well, you're both tired with the old and excited for the new. 

Although not in their best financial interest, this is typically the mindset of many successful entrepreneurs looking to transition into the next phase of their life, they just want to move on.

Acquiring a company that has failed to reach its full potential value is a wonderful opportunity for the right buyer and there is tremendous upside if the new owner is willing to put in the effort to add the value the previous owners chose to sidestep.

Of course, it’s not without its risks-- Searching for the right business, learning how to identify the right opportunity, negotiating the deal, getting financing and then executing on your plan to add value all require careful planning, but, if you’re up for it, the opportunity is all yours.

The BDC study also outlined what kind of buyer the sellers should be looking for, this is an outline of what you, as a potential buyer should bring to the table:

“Focus on quality, not quantity, when looking for buyers. It isn’t primarily a numbers question. It’s about fit.” 

BDC - GUIDE TO BUYING A BUSINESS

So, who exactly would be considered a “quality buyer” and why should you care?

A quality buyer understands what they’re looking for, has the resources at hand to make an offer and has access to advisors to fill in any gaps they have along the way.

Let's unpack this for a minute.

What do you want?  

Most buyers know they want to own a successful business but need some help narrowing that down, this is really just a question of the buyer educating themselves on the process and understanding what would be a good fit for themselves. The average buyer spends between 6 and 24 months looking for the right opportunity, that’s a big range and there are many reasons for that but, the ones who understand exactly what they’re looking for have much better success.

Where’s the money? 

There are many different ways to structure a deal financially but one thing is for certain, the more money you have access to (yours or other people's), the more options you’ll have in the marketplace. Whatever your financial structure, be sure to navigate your personal administrative details as much as possible before entering into any negotiations. Waiting on a bank to get back to you with ‘next steps’ or an approval is a great way to miss an opportunity.

Who’s on your team?

You’re going to run into complexities as you work your way through the acquisition process, many of these challenges can be easily handled by a seasoned professional, but it’s critical that you know who these people are at the start of your search process. Understand what they charge, the problems they can solve and their timelines for delivery. Look at these advisors as part of your team, bring them in when you need their help and your journey to business ownership will be much smoother.

There you have it. Decide what you want, gather your money and build your team, then, start shopping.

Begin your search now