July 16th, 2020 by David Kemp

This is Part 2 of a three-part series entitled “Don’t Just Close Your Doors” in which we provide options for business owners who see no option other than shutting down. In the previous article, I urge business owners not to focus on the current cashflow of the business (which is likely not great, given the state of the economy) and focus instead on the sources of potential value in their business – client lists, location, intellectual property, existing contracts, and business systems. Rather than shutting their doors, we hope to encourage business owners to realize that potential value, and consider selling all, or a part, of their business to benefit from the value they have created.

FINDING A BUYER

You have determined that your business has significant potential value – now what? Finding a buyer, especially in a slow economy, will be a challenge and you need to ask yourself one simple question – “to whom would these components be valuable?”

  • MANAGEMENT/EMPLOYEES

    The easiest place to look for a buyer for your business is amongst your management team or employees. Your employees and management know your business, they know your systems, they recognize the value, and they likely run most of your operation already. Furthermore, because there is already a level of trust that exists between you and your key employees, the deal will be easier, quicker, and involve less money spent on professionals doing the due diligence. Lastly, because the deal is done internally, you don’t need to spend large amounts on business brokers or marketing your business. One downside is that, depending on the size of your business, employees will likely not have the resources to simply cut you a cheque on closing for the entire purchase price. The purchase price will likely need to be paid with a combination of bank financing and vendor-back financing (they pay you out over time).
  • YOUR DIRECT COMPETITORS

    The best place to look for a potential purchaser of your business may be the last place you would think of looking – your fiercest competitor. This is because they already have an existing structure built to operate a business in your industry and could immediately integrate your clients, contracts, and intellectual property into their existing business. In doing so, they may be able to make both business more efficient by adding revenue while reducing the need for commercial space, key employees such as management or accounting, and other major costs of operating a business.
  • STRATEGIC ACQUISITION

    A strategic acquisition is one in which one company purchases another in order to integrate that company into their own system because it allows them to grow, achieve efficiencies, and so on. This is a very similar concept to an acquisition by a competitor, except that it need not be a company that competes with yours. Examples could be:
    1. A craft beer taproom buying up a small craft brewery with a manufacturing space;
    2. A restaurant buying a small farm plot or farm lease in order to do true farm-to-table production;
    3. A residential real estate brokerage buying up a commercial real estate brokerage, and adding a commercial department;
    4. A natural health product company purchasing a natural health store with great walk-by traffic;
    5. A larger company that advertises extensively buying a marketing company and bringing it in-house
    All of these examples combine the best of both businesses to make one business that is greater than the sum of its two parts.

If you’re curious about learning more or taking the first steps in selling your business or merging it with another business, please don’t hesitate to get in touch with me at dkemp@fhplawyers.com.

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