April 21st, 2020 by David Kemp

We are realistically only one month into the shutdown due to the COVID-19 pandemic, and already businesses are starting to feel a serious pinch. This is a serious concern not only for the small businesses, but for all of us in Kelowna. Small businesses are the pillars in our community – they’re the sponsors at our charity events, they pay the salaries of thousands of Kelowna citizens, and their profits remain local, spent at local businesses. We ALL have an interest in keeping local businesses alive.

We have mentioned a few options available for small business owners in previous articles:

If you would like a further explanation of any of the topics above, please don’t hesitate to get in touch with me at dkemp@fhplawyers.com.

WHEN ALL ELSE FAILS

So what happens when all else fails, you can’t keep up with your financial obligations, and it seems that your only option is to close your doors and walk away? Before closing up shop, you may want to consider a potential sale of some key assets, a merger with another company, or even a sale of your whole company – and hopefully we can help you do so.

This series will cover the following topics:

  1. Sources of Value
  2. Finding a Buyer
  3. Methods of Financing

SOURCES OF VALUE

Your business is in a tough spot, but that doesn’t mean it has no value! Despite the fact that there may be more money going out the door than coming in, there are many sources of value you may not have considered:

  • Client List and Goodwill: Having an extensive client list, or even a small list of very good clients has a ton of value. Many businesses spend years trying to build the clientele, that you may currently enjoy. Maybe you’re the exclusive supplier to a large company that will recover after the downturn but isn’t currently buying your product; maybe you provide services to an existing network (ie. beer to various bars and liquor stores, landscaping services to property developments, IT services to all of the law and accounting firms in town, etc.); Whatever drove your success before the downturn will drive it afterwards and this is valuable, despite the fact that money may not be currently coming in the door.
  • Location: If you’ve got a long-term lease for a fantastic location, this alone could render your company more valuable to the right party. This is especially true if your lease is on very favourable terms, such as low rent, or multiple renewal periods at modest rent increases. Key to this is having either a friendly landlord, or the ability to transfer ownership in your company without consent from the landlord. A recent example from our practice was a hair salon that was purchased for six figures, then promptly shut down – the purchaser simply wanted to take over the location.
  • Existing Contracts: This is similar to client lists, but even better – these are clients who are bound, by law, to continue to deal with you, buy products from you, receive services from you, and so on. This kind of predictability is very attractive to companies who are looking to expand their clientele, distribution of their products, and so on. To this point, if your client relationships have thus far been mostly “handshake deals”, you may want to try to formalize them in even just a simple contract.
  • Licenses: If you are in an industry which requires a licence to operate, especially if that licence is either scarce or hard to get (ie. liquor stores, bars or pubs, cannabis stores, etc.) or exclusive to you (ie. exclusive right to distribute a popular product), this can potentially hold huge value to someone.
  • Intellectual Property: Do you have a recognizable trademark? Recipes only known to you that keep customers coming back? Patents in items you invented? Copyright to original creations such as an educational curriculum? Perhaps you simply have a website that drives a lot of traffic or that has great SEO, a potentially popular domain name, or even social media accounts with a large following (ie. Facebook, Instagram, LinkedIn, Google Reviews, etc.)? These all potentially hold a lot of value to the right buyer.
  • Existing business systems: Businesses that operate efficiently, with a strong team, a solid organizational structure, and well-developed metrics are very difficult to build. It could very well be that your well-oiled machine, while not profitable to you, could be incredibly valuable to the right buyer. A marketing company may be picked up by a larger company wanting to bring marketing in-house; a manufacturer may purchase a storefront in a popular location in order to control their supply chain; a large engineering company may purchase a small engineering company that has deep specialty in a specific area in which they don’t have expertise. Whatever your expertise, a well-functioning and efficient business that can operate without you will be valuable to the right party.

By analyzing the value that remains in your company, despite a lack of cashflow, you may be able to find a solution that DOESN’T involve simply closing your doors and shutting down for good. If you are interested in learning more about selling/merging your business or otherwise realizing the value in your business in these difficult times, please don’t hesitate to get in touch at dkemp@fhplawyers.com.

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