Five smart steps to selling a business

The 5-step process we've found effective in selling a business

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 to 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.

Considering the purchase of a franchise?

Weighing the franchising options

For certain buyers, a franchise is a good fit.  As explained in the previous post, Franchises, a business-in-a-box, franchising is a method of being in business for yourself, but not by yourself.  Individual franchisees are local owners/managers who apply a prescribed system of business operation to produce and sell specific products/services throughout a market territory.

Franchising is a fast-growing area. There are  franchises in almost every industry from recruitment to landscaping to building maintenance to consulting services to metal supply to education and the list goes on.

The important issue is –what skills are required to be successful in a franchise and what does a typical day as an owner of this franchise look like.

• Some franchises require sales, marketing, and management skills to be successful and will make the owner $400,000 plus per year.
• Some require training or coaching skills.  Others require operations and supervisory skills.
• Some deal with the public and some are business-to-business franchises.
• Some will make the owner a decent living and that is all.
• Some are good for part-time or absentee owners and some require total commitment.
• Some are great for multiple location owners and some are not.

If you are considering the purchase of a franchise:

1. Use a good broker who knows the franchise system.
2. Do your diligence before you buy – meet or speak with numerous current franchisees in the system that you have selected from their list of all franchisees, check for litigation and disputes within their system.

Sunbelt participates in the annual franchise meetings of the franchisors we represent and maintains regular contact with all of the franchises.  We represent some 50 franchisors in Canada and they represent one out of every 10 businesses we sell.

We are very discriminating about which franchisors we will represent:  we validate the franchise before we take them on and we keep validating them to make sure they are delivering appropriate services and support to their franchisees and that their franchisees are being successful.

The assistance you get from Sunbelt is free and will help you make the best choice for your future.

Franchises, a business-in-a-box

 

We represent some 50 franchisors in Canada and they represent one out of every 10 businesses we sell at Sunbelt Canada.

 

Our business brokers work hard to connect buyers with businesses where they can be successful and happy.  For some, the solution is the purchase of an existing operating franchise with a known name, system of operations, specific track record, trained employees, existing customer base and cash flow–a business-in-a-box.

Most people associate franchises with fast food.  Some outlets seem to be busy no matter where in the country you happen to be.  We do like our coffee and snacks, don’t we!

Taking a snapshot of the franchises our Sunbelt Canada offices currently have for sale, you’ll find that food-related operations — coffee, pizza, fast food, restaurant, liquor stores, bakeries, smoothies, sandwich, bagel, ice cream– make up almost half of the listings.  Others—window treatments, beauty salons, and document destruction, for instance–address service needs at home or at work, at business or at play.

However, there are franchises in almost every industry from recruitment to landscaping to building maintenance to consulting services to metal supply to education, and the list goes on.

We represent some 50 franchisors (the parent company) in Canada and they represent one out of every 10 businesses we sell at Sunbelt Canada.

Franchising is a fast growing area.  According to the Canadian Franchise Association, franchised businesses account for 40% of all retail sales in Canada. That number is even higher in the United States, where Sunbelt’s franchise sales company FranStop says that nearly 50% of all domestic retail sales in that country were from franchise businesses.

Sunbelt is itself a franchise–we license the use of the Sunbelt name and the Sunbelt system of business brokerage that we feel works.

For certain buyers, a franchise is a good fit.  Franchising is a method of being in business for yourself, but not by yourself.

From a business standpoint, a franchise is a known name and a system of business operation that teaches you how to produce and sell your product and/or service throughout your market territory.  It is a proven system of business success that is teachable, trainable, reproducible and repeatable and that the marketplace responds to by purchasing your product or service. The individual franchisees are local owners/managers – a tactic to insure that the system is followed faithfully, allowing the success in one area to be duplicated and repeated in other areas.

A franchise’s success rates provide a very strong underpinning of value, which also corresponds with a lower risk.  Remember that there’s a much higher rate of success based on buying an established business compared to starting one:

* starting a brand new business, 35% are successful
* buying a new franchise, 80 to 85% are successful
* buying an existing business that has shown profit for three years, greater than 98% are successful

Franchises are not created equal

When you start investigating the options, you’ll soon find out that not all franchises are created equal.

Under the standard arrangement, franchisees pay a franchise fee to purchase the franchise, they pay a royalty (a percentage of their gross sales) for access to an operating system and a brand name, which is how franchisors make money. They also pay an advertising fee that is used to offset the franchisor’s advertising expense.

The franchise fee can be substantial ranging from several thousand dollars to hundreds of thousands of dollars. Royalties generally range from 5% to 10%. Other costs can include rent, equipment, start-up inventory, operating licensing fee, insurance and possibly a grand opening fee to help promote your business.

Keep in mind that you’ll still need working capital and a reserve for unforeseen expenses once you’re open for business. With new franchises the working capital requirement can be substantial.

With some franchises, like Tim Hortons and Canadian Tire, you’re only buying an income stream:  when it’s your turn to sell, you will only get back what you paid, not book value, and the parent company has to approve the buyer–it goes back into their system.

You need to understand the dynamics at work before you walk down the aisle.  Talk to other franchisees about their experiences.  Ask them: “If you had to do it over again, would you buy this franchise?  Are you happy with the franchise and are you making a living?”  Keep in mind that your own results will be affected by factors like your own management and location.

Be aware that you’re really dealing with two sellers when you buy an existing franchise. The seller (franchisee) can sell you his or her rights to the business and franchise, but only with the agreement of the franchisor (the parent company). The parent company may try to sell you a NEW one, with a significant increase in risk.

Oftentimes there is a transfer fee involved and certain requirements for training before a new license agreement or franchise agreement is issued to you, the buyer.

Your ongoing relationship will be with the franchisor. The franchisor, who knows more about that franchise than anyone else in the world, will have a vested financial interest in your success and they will help you to learn how to manage and operate the business successfully.

So, can you follow a system and do it their way? Are you comfortable managing inside the box?  Or are you drawn to colouring outside the lines?

What advice would you give to someone considering the purchase of a franchise?

Doing business in Brazil

Sunbelt is opening four offices in the São Paolo area of Brazil

There’s a positive can-do energy about Brazil and its people I really like. And as a business person, it’s refreshing to deal with individuals who know what they want and aren’t afraid to make decisions on the spot.

I recently spent two weeks in São Paolo training new Sunbelt franchises. We’re opening four offices here, one in Rio de Janeiro and another in southern Brazil. We anticipate two more before Christmas and another 20 next year.

With its hustle and bustle and quick pace of decision making, São Paulo, the seventh largest metropolitan area in the world, is much like Manhattan. There’s a difference, though, in how those decisions are relayed to you. The Brazilian “no” is much more polite.

Brazil itself is an emerging world power.  It’s the world’s 10th largest economy (in terms of GDP) and the World Bank projects it will be 5th in a few decades.  The Economist lists it as the worlds fifth largest both by geographical area and population (198.7 million). Some 83.5% of its people live in urban areas.

This was my second trip to Brazil and I was amazed at the similarities in small business between our two countries. Since quality education is not freely available in Brazil, there is more class distinction than in Canada, but both countries are welcoming of immigrants and have a thriving small business sector that drives the economy.

On the downside, banks in both countries are reluctant to lend money to finance small business acquisitions and it’s hard for small businesses to get credit and the loans they need. Taxes in both our countries are very high with government expenditures growing faster than the economy and requiring an ever-increasing share of the average person’s income. We have governments that do not understand or promote small business and in fact implement policies that restrict their growth. The level of support is much greater in the United States.

Infrastructure and security are still issues in some areas of Brazil; on the plus side of the ledger, labour is inexpensive and subcontracting and outsourcing have not been tapped. Big business in agriculture, mining, oil and manufacturing has always been here, but as opportunities arise for the average Brazilian, millions are emerging from poverty, becoming employed and first-time consumers with income supporting a growing small business sector. The middle class now represents nearly 50 per cent of their population.

You couldn’t help but feel positive about the entrepreneurial spirit at work in São Paolo. Brazilians are clearly proud of their country’s economic growth and looking to the coming years with great anticipation. They are excited about hosting the 2016 Olympics and the 2014 World Cup and the opportunity to show the world their welcoming nature and the vast improvements in the country. We at Sunbelt are also proud that we’ll be a part of it.

Sunbelt® is the world’s largest network of franchised business brokerage offices.  Because each office is independently owned and operated, Sunbelt’s global reach is balanced with intensive knowledge of and involvement in the business communities in which it operates.