Thinking of Selling Your Business?
Start succession planning now for a strong exit.
An estimated 25,000 small to medium sized businesses in Atlantic Canada will be put up for sale in the next two decades.
Wow! I was stunned when I heard that figure at a conference a few years ago. Even as someone with a career helping business owners in our region buy and sell, it stopped me in my tracks.
That is a tremendous amount of value that will change hands.
Our region’s upcoming wave of sales is part of a strong national trend. Succession Tsunami: Preparing for a decade of small business transitions in Canada, a 2023 report by the Canadian Federation of Independent Business (CFIB), reports that 76% of Canada’s business owners plan to exit within the next decade, potentially representing $2 trillion+ of assets.
My next thought was of the thousands of local business owners who will struggle with this milestone transaction, not because their businesses aren’t well-run or valuable, but because they didn’t properly prepare.
According to the CFIB report, only 9% of Canadian businesses have a formalized succession plan.
The implications are profound. Without a plan, owners risk:
- Lower sale prices
- Unexpected tax consequences
- Lack of marketability to purchasers
And yet, it’s easy to understand why so few owners are planning for succession.
Sometimes, they are confronted with a crisis or sudden situation that accelerates a sale, such as a health issue or personal matter. The rush often results in a premature (and frequently undervalued) deal. But even those with ample lead time to prepare tend to put it off.
The idea of selling is overwhelming; owners simply don’t know where to start. Plus, they’re focused on running their company day to day. Here in Atlantic Canada, approximately 85% of companies have less than 20 employees. They’re busy working in the business and likely lack in-house expertise for this kind of complex legal and financial transaction. And as entrepreneurs, they’ve figured out many aspects of running a business themselves; why should the sale be any different?
They just assume they will pull together a plan with their accountant and lawyer when they’re ready to exit and oversee the deal themselves.
That’s a big mistake.
Selling a business is challenging—it’s a long roller coaster ride. Planning early and being prepared can make it much smoother and ensure owners don’t lose valuable leverage in the negotiations.
To maximize business value and sale terms, here are four things owners need to know.
1. Preparation is Critical.
Benjamin Franklin said it best: “By failing to prepare, you are preparing to fail.”
Selling a business is not easy. There are many twists and turns along the way, and owners consistently underestimate the time and complexity of the process.
I’ve seen this firsthand with owners in a range of industries and business types. Luckily, we were able to help them navigate what can be a long, sometimes confusing, often frustrating process that comes with no guarantees.
A deal takes many months, sometimes years. Business owners who think they can turn around the sale of their business in a few months need to understand that is not the reality. Many businesses were deeply affected by COVID-19 and now face uncertainty by Trump’s tariffs. Market conditions, attaining financing, and more extensive due diligence can all prolong a sale.
Purchasers are performing more diligence than ever in their quest for a good deal, and a solid plan prepares owners for it. Plus, proper structuring can mitigate taxes and put more money in their pocket.
A plan offers owners more than credibility, clarity, and direction–it provides confidence. The CFIB reports that 91% of business owners who had a formal plan felt confident about selling, compared to just 59% who did not have a plan.
2. Increase Value BEFORE You Sell.
Owners who start succession planning early enough have time to unlock more value in their company, tweak it to attract buyers, and ultimately net a better sale price.
Purchasers are looking for businesses with:
- Healthy cash flow (free of discretionary expenses)
- A leadership team (not an owner doing everything)
- Accurate, timely financial reporting
- Diversified customers
- Transparency on business issues
- Strong corporate citizenship
Succession planning lets owners assess their weak points to mitigate them before selling.
3. Realistic Price Expectations are Paramount.
Most owners have never bought or sold a business, but many believe they know what theirs is worth.
Almost always, they are wrong, asking a price the market will not bear.
Inflated price expectations are the biggest impediment to selling a business.
I get it. For many owners, their business is their life’s work. It’s deeply personal–which is why it is so important to get an objective valuation.
“You never get a second chance to make a first impression” applies to selling a business. Good potential purchasers presented with unrealistic price tags will walk, taking a solid sale opportunity with them.
4. Competitive Tension Drives Better Deals.
While some owners believe that they can sell the business themselves, there are many nuances that owners don’t understand, including how to generate and manage competitive tension between multiple potential buyers.
Identifying good-fit buyers takes expertise, discretion, and structure. As with every step of the sale, it is time-consuming. It takes skill to manage this sensitive situation, keeping bidders interested and informed but not alienated by the process.
I’ve heard that competitive tension can drive prices by 10-20% on average. I’ve seen instances representing buyers and sellers where they have gone even higher. In our experience, we’ve been in situations on both the buy and sell sides where initial bids have increased dramatically, up to almost 70%.
For owners who try to do it themselves, however, the process risks becoming haphazard and unstructured. Buyers sense this, giving them leverage in the negotiation or even causing them to back away entirely.
Remember: if someone approaches you quietly, they are likely trying to get a good deal. If they are interested in your business, others probably will be, too. With the right plan and support, this competition can be a real asset to owners during the sale.
Small businesses are the backbone of our economy here in Atlantic Canada. They are a massive source of growth, jobs, and pride for our region. As many thousands of owners prepare to sell in the next two decades, I hope that by planning early and being prepared, they will have smoother, more satisfying exits that maximize value for them and our region’s economy.