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Why Most Businesses Never Sell?

At any given time, up to 20% of all businesses are for sale and of those businesses for sale, only 25% of those businesses ever sell. While this data may not be empirical, it is reflective of our collective experience in the market. What this means is that of the nearly 70% of business owners expecting to sell their businesses over the next 10 years in Canada, only 25% of those will actually sell. Why? No idea of actual business value, unrealistic expectations, no succession plan with management, not really a business but a job for the owner. There are three common mistakes that business owners often make when they go to sell their businesses. Owners typically have no idea what the business is really worth and as such when they receive an offer they are insulted that it is: 1. lower than they think it SHOULD be worth; 2. they expect more than it is actually worth and as such can never get a deal done based purely on stubbornness because no one can see the true value; or 3. lastly they go about the sales process in entirely the wrong way And by the wrong way, we mean that businesses are often inappropriately positioned with prospective purchasers, management is not kept in mind as to the future plans for the business and the business does not get properly prepared for the sale process. Similar to selling a house, one has to make a business easy to buy and looking its best. Inappropriately positioned, means that too many businesses are marketed in such a generic manner that no real information is provided on why the business is a great investment or acquisition opportunity. The best way to position a business for sale is similar to any sales process, sell the sizzle, meaning the benefits or key features that exist in the business. For example, as opposed to showing the growth profile of the business as a simple table of financial information, instead show the profile of the top 20 customers over the last 3 years to illustrate how the size of business with these customers has increased and how the percentage of overall sales attributable to these customers has decreased demonstrating increased customer diversity and increased customer penetration at the same time. Another example is a detailed analysis of the components of cost of goods sold over the past three years to illustrate how the improvements in the purchasing department, combined with efficiencies realized in operational efficiencies have led to reduced cost of sales and increased gross margins. This not only shows higher profits but also shows concrete examples of a well run, constantly improving business. These specific deeper examples of business indicators are what investors look for when making investment decisions and to present them in marketing documents makes the process easier for the investing professionals and also helps separate the wheat from the chaff.

Why Most Businesses Never Sell?

ABOUT EQUICAPITA
Equicapita is a private equity fund that acquires established, private, small and medium sized enterprises (SMEs) located primarily in Western Canada. Equicapitas investment drivers are to acquire operating companies at attractive valuations, with a history of generating sustainable cash flow and proven management teams. Equicapita believes that there is: - a generational opportunity to acquire baby boomer SMEs; and - a funding gap in the $2 to $20 million enterprise value range. The retirement of baby boomer business owners has been described as triggering one of the biggest transfers of corporate assets on record in Canada. This creates an environment with an abundance of opportunities to acquire SMEs with long-term operating histories, at attractive cash flow multiples. Equicapita provides investors with access to this alternative asset class via an efficient RRSP eligible structure.

DISCLAIMER
The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Equicapita and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither Equicapita nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to Equicapita and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting Equicapita or its relevant affiliate directly.

Why Most Businesses Never Sell?