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Buying a Business -Business Valuation Research   

Selling a Business - Business Sellers:  Why is the Buyer so Nosy?

Question of the Month:  I Need to Layoff a Few Employees, Do You Have Any Suggestions on How to Smooth Over the Process and Not Harm My Company's Morale? 

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The Undersigned Has Acted as an

Advisor to the Vendor

Beal Consultants

Steven Beal, MBA, CGA, CFA, CBV

204-478-7266 ext. 109

www.bealconsultants.ca

One of the biggest questions I get when talking to business sellers (and buyers) is "What is this business worth?" The answer is never easy, but let's discuss some of the approaches we take when we value a business - and I will discuss some recent research done on Canadian and US business transactions that show some revealing stats!

In general, there are three approaches to value a business - based on assets, based on income (cash flow), and based on market comparables. As I have said before, all three come in to play, but they are not additive - we typically want to look at all three methods before making a final determination of value, but we can't add the value derived from the income approach to the value of the assets.

The more comparable the asset, the easier it is to understand and apply market comparable approaches. The best example of this is residential real estate - my house is worth $150,000 because my neighbor just sold his for $150,000, and we have similar homes. Of course, no two homes are alike, so we adjust for certain factors: the extra bedroom is worth an additional $10,000, the smaller kitchen costs you $5,000 (these numbers are by way of example only - consult a real estate agent if you want your house appraised!)

Unfortunately, when you look at businesses, almost nothing is directly comparable - businesses differ based on location, revenue, costs, profitability, management, etc, etc..  That is why they are typically valued based either on income that the business generates or based on the sum of assets (equipment, inventory, etc.) that can be valued separately. Of course, valuing just the tangible assets typically ignores the "goodwill" of the business - the intangible value of the business that makes it worth buying or, for the seller, makes all the sweat equity real.

The valuation of goodwill is the tricky part. That is why we typically start by looking at the income the business generates to determine the overall value, and then compare that number to the sum total of all tangible assets to determine the goodwill component.

Recent Research

So much for theory - what do the numbers say? While it is always risky to use comparables for businesses, they do shed some light on the overall market. I was recently analyzing over 10,000 transactions of businesses across North America, and tried to isolate the "goodwill" component. What I found was quite instructive, especially for Canadian businesses. In general, everyone assumes Canadian businesses sell for less than US businesses. This is true - but only up to a point. The "multiples" of income that Canadian businesses get are very similar - on average - to those in the US, but the multiples relating to pure goodwill are lower - about 30% lower.

What does this mean? Canadian businesses are doing fine - but when they are looking to sell, they need to know how to maximize their goodwill. The business buying market is less robust here than in the US, where people are willing to pay more for the intangible aspect of a business. That is where we help - we help business owners maximize the value of their business both before they sell, and as they sell their business.

In the meantime, if you would like more information on buying a business, contact us at 204-478-7266x110.

Carrying on the theme of "due diligence," I get a lot of complaints from business sellers who think buyers are just being "nosy" when they ask for certain pieces of information (like tax returns or bank statements). Certainly, buyers sometimes want them out of sequence ("give me every scrap of information I ask for, and maybe I'll consider making an offer, once I have reviewed it all for six months..."), but once a offer has been made, and accepted, "due diligence" is the next step. At that point, the buyer has the right to see the books and the records of the company. There is no point hiding anything, because anything bad will come out during due diligence, so the earlier in the process it comes out (ideally before an offer is even made), the less damage potential damage it has.

Business sellers - don't be offended when the buyer asks detailed questions - that's his job, and the only way you will sell your business.

If you would like more information on selling or valuing a business, contact us at 204-478-7266 x110.

Hunting Outfitter 

Home Decor Retailer 

Specialty Building Product Retailer

Online Electronic Store

Fast Food Sandwich Franchise

Breakfast & Lunch Restaurant 

Specialized Local Trucking/Disposal Bin Business - Conditionally Sold 

Construction and Renovation Company  

Trucking Company - NW Ontario  

Greeting Card Distribution Route  

Plum Creek Gifts - Price Reduced 

Rural Restaurant and Convenience Store  

Swimwear Retail Store - Conditionally Sold 

Winnipeg Convenience Store   

High Volume Retail Chain  

Fitness Studio  

Indoor Tanning Studio and Massage Salon  

Small Town Convenience Store 

Thompson Hotel and Restaurant    

Prepared Fine Foods - Catering, Wholesale, and Retail 

Addiction Treatment Center

Established Painting Franchise 

   Marine Dealership and Services - Saskatchewan  

    Reputable Accounting Practice Outside of Winnipeg -  

Conditionally Sold 

 Existing Quick Service Sandwich Franchise 

 Web-Based Specialty Food Seasonal Importer & Retailer - Conditionally Sold  

Manitoba Bottled Water Plant & Retail   

Rural Gas Station/Convenience Store - Conditionally Sold 

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To review any of these business profiles, please click  here .

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We do not advertise all of our listings to the public.

If you have a specific type of business in mind,

please call 204-478-7266 x110 to inquire!

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 Beal Consultants Website  

 "Nothing is a waste of time if you use the experience wisely."  

  Auguste Rodin     

Question of the Month:  I Need to Layoff a Few Employees, Do You Have Any Suggestions on How to Smooth Over the Process and Not Harm My Company's Morale?

 

In a small business environment, employees tend to form close bonds with each other. This makes the layoff process particularly difficult. Employees who remain with the company may no longer have job security, and employee morale may suffer. For any business owner laying off employees is stressful, but if managed properly you can pacify the situation.  

Here a few tips on how to handle layoffs:

• Deliver the message promptly - if layoffs are essential, do not delay delivering the message to the employees affected. Spend enough time so you can properly prepare an action plan, but do not delay the inevitable any longer than you have to.
• Deliver the message personally - the hardest part of layoffs is actually telling the employee they must be let go. Do not delegate this task. The employee's manager should deliver the message. Most people are loyal first to their manager, then to their company. Deliver the message in private, and give employees time to react. Have a script ready if more than one manager is laying people off.  Consistency is important.
• Perform the layoff with dignity and compassion - offer to give the employees let go a reference letter or offer to help them find a job. Allow employees to give appropriate goodbyes to their fellow coworkers and ensure they are paid their final wages and unused vacation promptly. Remaining employees will respect the way you dealt with layoffs if they are performed in an appropriate manner.
• Hold a formal meeting - your remaining employees will talk about the issue. If you fail to personally address the layoffs, your employees will start to make assumptions. When people become nervous, the rumor mill kicks into high gear. Hold the meeting after you have told the employees affected by the layoff. This will help to dismiss rumours, and assure remaining employees you value them, and dispel any worries that your business may be unstable, preventing them from seeking employment elsewhere.
• Convey expectations - often when employees are laid off, remaining workers will have to pick up the tasks previous performed by the employees that were let go. When assigning new duties to your remaining employees, give employees tasks that will expand their current skills and give them more responsibility. Meet with employees to grasp their current workload and whether to not they can take on the additional duties.
• Offer support - the remaining employees will experience a wide array of emotions, such as insecurity, anger and fear. Acknowledge these feelings, and communicate with your employees treating them with courtesy and understanding. This will help to dispel negative emotions.

Ensuring you handle your layoffs with compassion will also help remaining employees feel positive about your company, optimistic about their future, and committed to their work. Employees who resent how their colleagues were let go or fear job instability will not be productive employees. Help your employees to realize that there is growth after a layoff and keep them informed on the company's progress in the future, even if it's slow.

For more information, contact us at 204-478-7266x110.  

Beal Business Growth Consultants, Inc. helps owners of small and medium-sized businesses to buy, sell, value, and grow their businesses.  We also work with individuals who are looking to buy or start a business or franchise.

Call us at (204) 478-7266 x110 for a free, initial 30-minute consultation to explore how we can help you buy, sell, value or improve your business.  .

Copyright 2013 by Steven Beal, Beal Business Growth Consultants, Inc.  The information herein is not complete and is intended only to provide guidelines to supplement counsel the reader receives from a qualified professional.  It is distributed with the understanding that the author is not rendering legal, accounting or tax advice or opinions on specific facts or matters, and accordingly, assumes no liability in connection with its use.

Published by Beal Business Growth Consultants, Inc.