We Have a Dirty, Scary Term. It’s Called…Succession Planning!
In a world where entrepreneurship is growing exponentially and more and more startups, small businesses and franchises are erecting, the discussion of succession planning is becoming more important than ever. Moreover, the importance of preparation and planning for the sale of your business, emotionally & financially, is becoming more and more crucial. Why do I say this? It’s simple:
1) 104,000 businesses are started each year – Startup Canada
2) 98% of businesses are small enterprises – Government of Canada
3) 60 per cent of business owners aged 55 to 64 have yet to start discussing exit plans with their family or business partners. – CBC
4) In the next 5-10 years there will be 550,000 Canadian baby boomers looking to retire and sell their business – CIBC World Markets Inc.
Living in a country that is both entrepreneurial and small business in nature, coupled with key activities of ill-prepared boomers retiring will create a competitive landscape that will definitely put a downward pressure on selling prices and overall valuation of businesses, it’s simple economics. So, as business owners, franchise owners and startups you need to have a succession plan that is part of your overall business plan, and you need to prepare and plan for the eventual sale right now!
I have had the privilege of interacting with amazing business brokers, franchisees, franchisors, business owners and entrepreneurs looking to buy or sell a business or franchise and I’ve noticed a simple formula to create a valuable business for sale, or at least businesses or franchises that are interesting to potential buyers. Have a look at the chart and explanations below:
Timing: Know when to sell and when not to sell based on economic landscape. Does it make sense to do it right now? Do I need to do it right now? These are valid questions to ask yourself.
Self-Sufficient: Create a business that is not dependent on 1 leader, 1 employee, 1 supplier or 1 customer.
Recurring Business: Create a business that has profitable, growing & recurring revenues year-over-year. Most buyers want to see 3-5 years of financials in order to apply some sort of normalized projection.
Financial Reward: This is your payout when you sell because you created an awesome, valuable company!
Seamless: When you know when to sell a self-sufficient business, I like to call that seamless. Meaning any business savvy person can walk in and operate the business with little to no issues.
Sustainable: A sustainable business is one that has healthy, recurring revenues and is self-sufficient. Meaning, the traction to date can be upheld for the foreseeable future.
Growth: When you create a business that has healthy recurring revenues and you know when to sell it, you are capitalizing on a business with healthy & engaging growth – something any and all buyers should be turned on by.
Moreover, I think the more important topic in regards to preparing and planning for a succession plan is understanding the different options on the journey to exiting your business (as shown in the image) and to communicate your vision thoroughly to family, key stakeholders and top executives. Having the conversation early is a must because family succession and other options may be out of the question. You want to ensure that you address any questions or concerns out of the gate and are prepared to have meaningful conversations with potential buyers. This can be the difference between selling at a valuation you like or not.
As mentioned, the conversation about succession planning is becoming more important today than it has ever been and it is a conversation that can get extremely granular and differs business to business. So take it serious, if you want to WIN.
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Nunzio Presta
From the Desk of BizON
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