A Good Business That Makes Lots of Money

We often receive calls from buyers interested in buying “a business” and when asked what type of business they are interested in, the answer is invariably “a good business that make lots of money!”.  As much as we love to help buyers find a “good business” that make “lots” of money, we’re often lost in the buyer’s definition of the “good” and the “lots”. To help these buyers narrow their search, they should ask themselves the following list of questions:

1. What do I want to accomplish from owning a business?
for example, to travel less for work and spend more with my young family or to relocate somewhere closer to my aging parents or to get out of my boring job etc.

2. What am I willing to do to accomplish my goal in question 1?
for example, take a temporary reduced wage as long as the income from the business supports my current lifestyle or to uproot my entire family and move to where my parents are located.

3. How much time am I willing to work in the business? On the business?
A small business owner usually have two roles, one is to work in the business, making sure it is cash flow positive and the second role is to work on growing the business.  Both roles require different skill sets.

4. What skills and experience do I have that is transferable to business ownership?  Do I have skills to work IN the business?  Do I have the experience to work ON the business?
If I don’t have the skills to work in the business, can I hire someone easily?  If I don’t have the experience to work on growing the business, how and where can I find help?

5. What kind of job I absolutely hate to do?
For example, I hate the cold and don’t like working outdoor

6. What is the minimum wages I need from the business in order to maintain my current lifestyle?
This will determine the cash flow needed from the business

7. How much cash down payment do I have to purchase the business?  How far will it set me back if the business fail?
For example, I have $300,000 savings.  My wife has a stable job and we can live off her salary if needs to be.  It will probably set me back 5 years of savings if I failed in the business and since I’m only 42 this year, it will not be devastating.  However if I can maintain the cash flow of the business, I would be mortgage free before I turn 50; which is 10 years sooner than if I continue with my current employment!

These questions will not only help buyers narrow their search for a suitable business but also allow them to ask questions that focus on whether a particular business for sale will meet their goals.  A buyer who is armed with a self evaluation of what he or she wants to accomplish through business ownership will be able to quickly make a decision when the right opportunity present itself.

Submitted by Siew Cheng

Survey of Business Financing

Biannual Survey of Suppliers of Business Financing Statistics (2011 data analysis): This document represents the first public release of information from the new biannual Survey of Suppliers of Business Financing. The survey collects hard data on business lending activities.

Industry Canada recently released its first survey results on the suppliers of business financing. The overall trend points to an increase in business lending activities by the Banks. This is good news if you are a business with tangible assets that can be easily securitized by the Banks.

However if you are buying a business in the service industry and/or business with little tangible assets, than you might just have locked yourself out from borrowing from the Banks. Also an established and profitable business will sell for more than just the value of its assets. So the question in Canada remains, how does a small business owner sell his business and ensure that the Buyer can obtain reasonable amount of financing from the Banks for his business.  Unfortunately the answer today is this is NOT possible.

Here is what we know of small business sales. A typical buyer is willing and able to put down between 20 – 30% of the purchase price towards the price of the business. The Banks are often able to finance 40 – 50% of the purchase price secured against the assets of the business. And the GAP of  20 – 40% is financed by the Seller.  This is just the reality of small business sales today and I do not see too many ways around it, especially if the Seller wants TOP dollars for his business. Of course he can choose to sell the business for a discount and get paid in all cash, typically this will be at 60 – 70% of the price.

Seller financing is a reality and a very important aspect of the sale of a small business. Why?
A seller who provides financing often will have a higher probability of successfully selling his/her business. In addition, seller financing often convey the message that the owner is confident that his/her business is capable of continuing to generate the cash flow to repay the loan after the sale. Other benefits of seller financing is also it may reduce your tax liability at the time of sale, provide you a higher value for your business since the portion that is financed also generates additional interest income.

So if you are planning to sell your business, my advise to you is to select a Business Sales intermediary who is able to price your business appropriately,  who understands financing and able to help a buyer negotiate the most amount of financing for your business, and then securitize your financing portion appropriately with the Buyer.

For more information on different financing options when buying or selling a business please click here. 

8 Rules to Selling Your Business

I was recently asked by a business owner, what are the basic rules one need to follow to successfully sell a business.  After going through with a few that came to my mind, I realize how unprepared most business owners are when it comes to the topic of selling their business. Unfortunately as the majority of baby boomer business owners get older, this topic will become more important and one that is often discussed between partners, families and friends.

So here are the 8 Basic Rules that I believe one need to observe in order to successfully sell the business:
Rule #1: Do not try to sell your business yourself.

Rule #2: Have a clear understanding of why you are selling your business.

Rule #3: Have a realistic understanding of what it is you have to sell and how valuable it really is.

Rule #4: Have a good understanding of why someone would want to buy your business.

Rule #5: Get your house in order.

Rule #6: Plan to sell a business opportunity, not a pile of assets or a set of financial statements.

Rule #7: Plan to have multiple, enthusiastic buyers for your business.

Rule #8: Do not get attached to a particular price for your business; plan to let the market give you the best idea of what your business is worth. 

How Do You Calculate Profit?

The following article was written by Tom West and published in his Newsletter “The Business Broker”. I thought that it is very amusing yet it is true and I have came across a number of small businesses in Alberta where the true measure of the business profits had to be determined using one of this methods.  While we at VR Business Sales do not advocate the below accounting system, we find the owner’s perspective amusing and informative. 
A Greek restaurant owner had his own bookkeeping system. He kept his accounts payable in a cigar box on the left-hand side of his cash register, his daily cash returns in a cash drawer of the register, and his receipts for paid bills in a shoe box on the right side of the cash register. When his youngest son graduated as a CPA, he was appalled by his father’s primitive bookkeeping methods. “I don’t know how you can run a business that way,” he said. “How do you know what your profit is?”
“Well, son,” the father replied, “when I got off the boat from the old country, I had nothing but the clothes on my back. Today, your brother is a doctor, your sister is a speech therapist, and you’re a CPA. Your mother and I have a nice car, a city house, a country house, and plenty of money for retirement. We have a good business and everything is paid for. Add all that together, subtract the ‘clothes on my back,’ and there is your profit.”

10 Simple Steps to Successfully Buy a Business

Most first time buyer of businesses still believe that buying a business is like buying a house. While there are many similarities the process is completely different. Buying a business is a major lifestyle change which can be fun, exciting, challenging and very rewarding providing you do it properly.

1) See your Commercial Banker and find out how much money you can borrow then add this to the cash you already have to establish how much you can afford to invest in a business. Most people visit their local branch and speak to the first Banker they are introduced and assume that they will have no issues in getting financing. A good commercial Banker will be able to point you in the right direction and educate you on how business financing works and what is the maximum amount you might be able to borrow.

2) Meet with your accountant to tell them that you are looking to buy a business and ask them to review your structure (company, partnership or trust and taxation set up). Advise them that when you find the right business that they will be required for due diligence.

3) Establish what sort of business that you would like to buy. What are your interest? What are you good at? What skills do you have? Remember a business is a lifestyle change therefore you must buy something that you are going to enjoy. Four basic questions to ask are:
a.  Is the business profitable?
b.  Can the business generate sufficient cash to pay down the loan?
c.  After paying the loan payments, can the business afford to pay me a wage to support my family?
d. What will be the return on my cash investment?

4) Know your income requirements and financial needs. If you need to earn $100,000 a year from a business to live comfortably and meet your financial commitments then this forms part of your criteria. Generally businesses net between 10 to 20% of their gross revenue, therefore look for businesses in that price range based on your income required to support your family.

5) So you know how much you can afford, what would interest you and your income requirements; now “start looking”. You need to learn what businesses meet your criteria are worth. You need to speak to business brokers, get information on businesses you see advertised and get to know what their real value is. This will take time however, it is time well spent.

6) Be prepared as you may not get everything you want for the price that you can afford. You may need to compromise which may mean prioritizing your requirements or criteria. There is no such thing as a “perfect business”. If you are looking for a perfect business, don’t buy one – start your own!

7) You have now looked at lots of businesses, spoke to many business brokers and received advice from everyone including the cab driver and your daughters’ gym instructor. By now if you are not totally confused or have given up you know exactly what you want, what it is worth and what is available.

8) You find a business that you believe is right for you. Do you place an offer right away or carry out due diligence before you make an offer? Neither answer is right or wrong. If you make an offer first, you are essentially entering into a contract with the seller to purchase the business and under the standard terms and conditions of the offer to purchase you must have sufficient time to do due diligence. In doing so, you have effectively taken the business off the market so that no one else can look at it and make a competing offer, while you complete your homework and be sure that all of the information is correct and that this business is exactly what you want. You are only fully committed to the offer to purchase once all of the conditions of sale have been met. By taking this step, you need to engage a lawyer to advise you on the contract and complete the legal due diligence and your accountant to complete financial due diligence. If you carry out due diligence before entering into a contract you may save on legal and accounting fees however, if someone else makes an offer in the meantime then you have effectively wasted your time and money. My advice, if you find something you believe is good and you like it then make the offer, as good businesses are always in demand and if you like it then you can be sure others do too. Also, to do a thorough due diligence most sellers will only give out detailed financial information once they have received a formal offer to purchase.

9) You have now made an offer to purchase a business. How exciting! Make sure that you have a good commercial lawyer that is experienced and understands business sale contracts as you need this person to guide you through the sale process and advise you at each step, beginning with the offer to purchase. Your accountant will ensure your structure is right and do a thorough financial due diligence. Your lawyer will ensure that contract deadlines are met for finance, due diligence and the receipt of information as well as transfer of assets, intellectual property and payment of encumbrances. When you buy a business, legal ownership is extremely important and requires the preparation and signing of a lot of necessary paperwork.

10) The business stacks up, passes due diligence, meets your criteria and you are moving on to settlement. Now you get very excited! You are one final step away from owning a business and making a lifestyle change. For the most part your lawyer will prepare everything for final closing and instruct you on what you need to do. You need to get your own house in order so that you are prepared to commence running this business the day of closing. The seller usually stays on for some period of time for transition and training.

There are no short cuts to buying the right business. Jumping any of these steps will only cause you unnecessary stress, expense and ultimately cost you more time. All throughout the buying process, the business broker is there to help you, chase up information and then at the contract stage manage the process so that everyone is happy and mutually beneficial outcome is achieved by all parties.

Business Financing Survey

Have you ever wondered which industries and segments of the economy gets the most assistance in financing from lenders. Here is a short 2 page survey released by Industry Canada showing financing activity by lenders during the first half 2012.

Overall it notes that Canadian Banks are still doing the bulk of this country’s business lending. What is actually more interesting to see is that contrary to popular believe more funding went to the retail sector than compared to others. To download a copy of the full survey, click here.

VR Business Sales Completes the Sale of Sand and Asbestos Removal Business

Edmonton, AB., February 28 2013 – VR Business Sales in Edmonton, AB  has recently completed the sale of Breath Easy Duct Cleaning and Asbestos Removal, a Calgary, AB based business that does duct cleaning and provides asbestos removal services to public schools and hospitals in Alberta and Northern BC.

Jey Arul, President of VR Business Sales in Edmonton, AB notes “The business owner was trying to sell his business for the past 2 years and in Spring of 2012 they hired VR Business Sales to assist them in selling their business. VR was able to quickly create a marketing profile and bring qualified buyers to the business by utilizing its proprietary marketing tools and buyer qualification process, which resulted in an offer.”  The buyer owns a similar business and has a dynamic background and was able to quickly recognize the synergies Breath Easy will create to his existing business.

VR Business Sales in Edmonton, AB facilitated in all phases of the transaction, from initial analysis through closing. Financial details of the transaction were not disclosed.

About VR VR Business Sales, Edmonton, Alberta
VR in Edmonton, AB represents business owners in the sale of their business; confidentially, professionally and with proven results. Since 1979 VR Business Sales, Mergers & Acquisitions has sold more businesses in the world than anyone. Information about VR Business Sales, Mergers & Acquisitions Edmonton can be found on their website at www.vralta.com. VR Business Sales, Mergers & Acquisitions Edmonton is located at 211, 3132 Parsons Road, Edmonton, AB. For more information, please call 780-469-4769.

VR Business Sales Completes Sale of CGA Accounting Practice

VR Business Sales in Edmonton, Alberta has recently completed the sale of a CGA Accounting practice. The practice established since 2004 has a client base of approximately 150 active corporate clients.

Jey Arul, President of VR Business Sales in Edmonton notes “The accountant was nervous of the process of selling the practice since confidentiality was very important for her”. Once VR was hired, VR was able to quickly create a professional practice marketing profile and talk to other qualified buyers in VR’s database, which resulted in an offer within four weeks.

VR Business Sales in Edmonton facilitated in all phases of the transaction, from initial analysis through closing. Financial details of the transaction were not disclosed.

About VR Business Sales, Edmonton, Alberta
VR in Edmonton, AB represents business owners in the sale of their business; confidentially, professionally and with proven results. Since 1979 VR Business Sales, Mergers & Acquisitions has sold more businesses in the world than anyone®. Information about VR Business Sales, Mergers & Acquisitions Edmonton can be found on their website atwww.vralta.com. VR Business Sales, Mergers & Acquisitions Edmonton is located at 211, 3132 Parsons Road, Edmonton, AB. For more information, please call 780-469-4769.

13 Reasons to Buy a Business in Edmonton

In January of 2013 VR Business Sales in Edmonton  received a total of 218 buyer inquiries for the businesses we had for sale. The buyers came from all over the world. We had buyers contacting us from almost every province in Canada and some states in USA such as New York, California, Carolina, Texas. We had buyers call us from France, Turkey, England, Ireland, and Monte Carlo. One of the interesting things we notice from  all of the buyers is they have all heard of Edmonton and Alberta and the success we are experiencing. So I decided that perhaps it is time that I share the great things that we are experiencing in this Province and City so we can celebrate it together.

1) Adjusted for inflation, Edmonton’s economy is expected to grow 3.5% to 4.5% in 2013 as compared to 2.4% for Canada.

2) In 2012 the population of greater Edmonton was 1,205,000; predictions for 2013 and 20 18 are 1,224,000 and 1,331,000 respectively.

3) Edmonton’s population has grown 2.5 times faster than the national average of 1.1%; Alberta’s population grew 2.9% to 3,906,800 in 2012.

4) Of all Canadian provinces and territories, Alberta and Saskatchewan are the only two to experience net positive interprovincial migration.

5) After a 480,000s.f. expansion in 2011, Edmonton International Airport served 6.7M passengers in 2012 (400,000 more than in 2011).

6) Edmonton has a strong labour market and a resulting, country leading, low employment rate of 4.0% (Canada is 7.2%).

7) Alberta’s unemployment rate in 2012 decreased to 4.7% from 5.5% in 2011 and 6.5% in 2010; the potential of a labour shortage is on the horizon.

8) Alberta’s avg. weekly earnings of $1,098 are 20..8% higher than the national avg.; $5.9B of consumer spending in October 2012 set a new record.

9) In November 2012 there were 258 rigs drilling in Alberta, a 12.2% drop from 2011 due to caution over shipping constraints and inventory pooling.

10) Over the next 25 years, Alberta’s oil sands, serviced primarily through Edmonton, will generate over $2.1 trillion in economic activity in Canada.

11) With 170 billion barrels, the oil sands represents 97% of Canada’s total reserves which are the world’s third largest after Saudi Arabia & Venezuela.

12) Edmonton’s industry is not only about natural resources. Our Economy is more diversified than those of Toronto, Montreal or Calgary, as ranked by the Conference Board of Canada.

13) The University of Alberta is the second largest research institution in the country. The Edmonton Public School Board has a reputation has one of the best school boards in the country, and one of the largest.

So based on the above 13 points (and I can add more), there is no surprise as to why more and more people are looking to move to Alberta and Edmonton and this is a great place to buy a business.

For a list of businesses that we have for sale please visit our site by clicking here.

Here are a few more links about this topic that might be of interest to some readers:

Alberta recognized as one of the fastest growing province in Canada

Alberta confident of economy in 2013

City of Edmonton Economic Outlook Report

Conference Board of Canada report on Edmonton real GDP growth in 2013

10 Tips for Selling a Business

1. Ensure all of your financials are up to date. Usual requirement is the last 3 – 5 years of historical Income Statements and Balance Sheet that are prepeared by a qualified and certified accountant with a CA, CGA or CMA designation. For small businesses if you do not have an accountant prepared statement than your Revenue Canada tax return T2 filing should be acceptable as well.

2. Tidy up your business as if you are about to move to a new house. Get rid of all those old inventory, papaerwork that you have been collecting for the last 10 years, bad debts, problem customers, unproductive employees, and assets that are not being utilized and/or old. A Buyer is not interested in inheriting your problems nor will they pay you for those. You are better off selling it yourself for a reduced price than thinking that a Buyer is going to pay you full dollors for those. As for the documents, a general rule of thumb is that if you have not looked at it for 3 years, most likely you will not, so get rid of it. A great tool which we recommend is to hire a part time employee and invest in a good shredder and scanner (both can be had for less than $600, I recommend the Fijitsu ScanSnap from Costco), and have the employee go at it.

3. Start thinking about how you can delegate some of your day to day activities of the business. Buyers do not want to buy a business that relies on the you doing every aspect of the operations. Create a lists of all the things that you do on a daily basis for the business and see what 3 – 5 areas that you might be able to delegate or train an existing employee to take over.

4. Check your existing lease, contracts and any agreements that you have in place. Some obvious ones are: lease, franchise, customers, etc. Some not so obvious ones are: website, yellow pages, long distance service providers, garbage disposal, etc. Ensure that they are up to date and can be assigned to the buyer.

5. Get your accounts up to date with GST, payroll taxes, federal taxes, suppliers, customers, etc.

6. Create a lists of everything that you would have to show or teach the buyer. Place the information on a binder or provide the lists to your business broker. We find that buyers typically due to ignorance want the seller to stay and teach the buyers the business for a very long time, if you had created a lists ahead of time and be able to show it to buyers, they are more at ease that you have thought through this process and can see no need for you to stay in the business for 6 months when just 2 months might be sufficient.

7. Contact an experienced Business Broker to get advise on what you should do and could do to maximize the price that you get for your business.

8. Visit with your accountant and get their advice on taxation and capital gains issues so that you do not have to pay more than you need to.

9. Plan what you are going to do after you sell your business as this will affect timing, advise from your accountants and future requirements.

10. Don’t try and selling your business on your own. Leave that up to your Business Broker. It is more imprtant that you concentrate on ensuring that your business performs to best ability during the sale process.