As per a Globe and Mail article by 2030, the last of the baby boomer generation will be turning 65. Approximately 42 per cent of small businesses are reportedly owned by Baby Boomers (madeincanada.ca). As Baby Boomer business owners retire and exit the workforce there are going to be opportunities for entrepreneurs to take over businesses.
Northwest Saskatchewan has several well-established and well-known businesses with owners who will be retiring in the next five to 10 years. Some issues that business owners looking to sell as well as prospective purchasers should consider are:
• Legal and tax considerations: These can vary depending on if a company is a corporation, limited partnership or sole proprietor as well as existing contracts, existing employees and leases, should be discussed with a lawyer. Changes to the tax code and capital gains should be discussed with an accountant to ensure all parties understand the ramifications. At times the most tax-advantaged way of selling a property may be great on paper but not realistic in the open market.
• Real Estate: Real estate may make up a large proportion of the value of the business. This may be problematic financing as a purchaser may have limited established commercial credit. At times more creative options could be considered including renting the property, rent to own, vendor financing or selling the business separately from the real estate.
• Confidentiality: Many sellers do not want to advertise they are for sale. They don’t want everyone to know their business and financials, worried about what existing and prospective customers will think. What will they think when you close your doors permanently? You can have prospective purchasers sign a non-disclosure agreement. Lack of exposure to the market may mean you miss out on a sale
• Exposure of the business for sale: Some business owners end up with a particular business through experience in industry, circumstance, existing relationships, family or luck. Many people would or could become business owners but they haven’t come across an opportunity yet. If they don’t know about the opportunity they can’t act on it. There are a number of entrepreneurial people who may have limited understanding of a particular industry or business but could thrive if they were given the opportunity.
• Mentorship: Unless a business is selling to someone already actively involved in that business, or that particular industry it may be tricky to attract someone with a limited understanding of the intricacies of a business to purchase it. A seller willing to stay on for a pre-determined timeframe to assist with training and transitioning can go a long way in ensuring the continued success of the business and alleviating potential concerns for prospective purchasers.
• Goodwill: Sellers at times place a premium on the value of the business outside the tangible assets. Going concerns can be more difficult to finance. Furthermore, once the principal leaves there goes part of the goodwill. The value of a business is determined by several factors including barriers to entry, licensing/professional requirements, existing book of business, existing contracts and transferability of those contracts, established business relationships and name brand recognition. If anyone can start a competing business with yours within a couple of months and the only barrier is capital, that complicates things.
• Franchises: Northwest Saskatchewan has had a significant franchise boom in the last four years. It may be hard for local businesses to compete with the influx of new franchises that may have low overall startup costs, corporate support and training, corporate in-house financing and regional or national brand name recognition. Some prospective purchasers may look at these options as lower risk than purchasing an existing small business.
Selling a business is a multi-faceted process that requires careful planning to ensure the smoothest transition possible. Consulting with professionals specializing in sales, taxes, legal issues and property valuation can alleviate many of the potential issues that may arise.
David A. Fortier is owner and president of Fortier Mattila Appraisals Inc.
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