Size of Construction Boom Comes as a Surprise

What will Edmonton Downtown look like in the next 5 years? It is hard to imagine that Edmonton with just under 1 million people has close to $4.8 Billion (OK realistically $3 Billion) worth of construction projects slated to complete in the Edmonton downtown area over the next 5 years. The Edmonton Downtown Business Association just released a report showing all of the projects that are currently slated for Edmonton downtown.

Now what will this development do for local businesses and the potential for new businesses want to set up in the area. I think local businesses will benefit the mosts with more people choosing to live in the downtown area and more activities taking place after business hours. One of the biggest concerns for most retail businesses that wants to set up in Edmonton downtown in the past has seen lifeless streets after business hours, litters, old buildings, etc. especially after comparing to other parts of Edmonton like WEM, SEC and Whyte Avenue.

With new developments being slated to take place, I believe downtown Edmonton will finally become a destination where people want to play, shop and just hang out.  I think downtown has improved significantly and sure the recent recession might have slowed the process a little, albeit 2009 – 2011 would have been the best time to have started some of the major projects as it would have been cheaper and everyone benefits when the economy takes off again. Overall I am excited about the prospects and hopefully the City, Edmontonians and the developers will follow through with this projects.

Click here, if you are interested in reading the full 34 page report.

How to Negotiate a “Put and Call” Agreement When Selling Your Business

I am often interested in learning more about how business sales transactions are negotiated and structured. Here is a great way to structure a deal that caught my eye. If you are thinking about selling your business, and would consider retaining a minority position in the company, this method of structuring the transaction will be attractive to you. This method of structuring the deal also takes away some of the more traditional fear of “buy/sell” agreements from a seller’s perspectives.

How to negotiate a put and call agreement when selling your business | Smart Business

VR Completes the Sale of Hotshot Trucking Business

We were engaged by this client to help in the sale of his business approximately 5 months ago through a referral from their Accountant. We met with the Seller and learned more about his business and his motivations for selling the business. The Seller was not a typical Seller since he was only in his mid-40’s. The business was very successful and growing as well. The Seller wanted to sell the business primarily in order to concentrate on their other business which is a landscaping business that operates out of the same location and primarily managed by his wife.

We reviewed the last 3 years of financials, looked at market comparables of what other businesses in the industry sold for and came up with a “Most Probable Selling Price” for the business. The business was listed in the market place for $550,000. We received over 200 inquiries on this business from potential buyers. All prospective buyer inquiries were qualified by VR support staff by asking prospective buyers to complete a standard Confidentiality Agreement and Buyers Profile. Based on the information we gathered we were able to determine and qualify 8 buyers. These 8 buyers were provided the opportunity to look at the business further via information available in the Virtual Data Room (VDR).

Of the 8 buyers, after further evaluation we were able to provide the Seller with 3 offers for the business of which 1 was accepted by the Seller. The entire process from start to an offer being accepted took about 4 months. The process was however delayed by about a month and a half due to financing. For some reason the Banker that the Buyer was dealing with could not somehow understand the Buyer’s need and was unable to complete the financing. On the advise of VR, the Buyer then spoke to another Banker in a different Bank and was able to secure better financing terms and rates for the same deal within one week.

Overall the transaction closed in about 5 months which is the average length of time for a business sale transaction at VR Business Sales Edmonton.

This transaction was completed by Jey Arul and Gary Repchuk.
The lawyer that represented the Seller was Richard Finlay from Hansma Bristow Finlay LLP.

Buying the Right Kind of Business

Once you have decided to buy a business, the difficult decision is over.  Well, almost.  Choosing the right kind of business to buy can also be a very difficult decision.  Regardless of how you arrived at the decision to buy a business, the decision of what kind of business you buy is a separate and independent decision.

For many people, deciding to buy a business and deciding what kind of business to buy are related.  However, my advice to anyone buying a business is to look at all options available, before deciding to purchase a certain kind of business.

At VR Business Sales in Edmonton, we receive hundreds of inquiries each month from prospective business buyers who often have the desire to buy a business, but struggle with what type of business to buy.  As a result they tend to spend too much time “kicking tires,” trying to figure out what is best for them.

Below are a couple of common examples of businesses that are frequently bought and sold, and that people consider.

The Gas Station:
The longest standing business all North Americans use and love – the corner gas station!   A gas station is a great business.  Everyone in my family and your family uses it to buy gas, maybe a pack of cigarettes, lottery tickets or milk, etc.  There are often many gas stations for sale close to your location.  However, you need to know there are two kinds of gas stations; the franchise gas station or the independent retailer.  There are pros and cons to each.  If you buy a franchise gas station, you get the name brand recognition and the traffic associated with it, but you will need to purchase expensive gasoline from a particular oil company.  However, when you purchase from a big oil company, you will not have to worry about environmental issues.

With an independent gas station, you can sign contracts with any gasoline supplier, but you run the risk of more exposure to environmental issues.  Also, the marketing support provided by large oil companies is guaranteed to be very helpful if you are new to the gas station business.

When looking to purchase a gas station – keep both options in mind, along with their pros and cons.  Regardless of which option you choose, the decision to buy a gas station is a good one.

The Restaurant:
Buying a restaurant is a slightly more risky than buying a gas station.  Gasoline for the most part is a commodity, without much product differentiation and buying gas is a necessity.
When thinking about buying a restaurant there are countless options.  The first step in choosing a restaurant to purchase is identifying a restaurant that you like — the type of food being served, the ambiance, the location, the prices etc.  Certainly you can change most of these variables except the location.  However, if you purchase a restaurant, I would recommend purchasing only if you absolutely love the restaurant as it stands.

Whether you decide to buy a gas station or a restaurant, it is critical that you go through the recommended steps before buying any business.  You need to evaluate the financials and determine the value and suitability to your operational experience amongst other various factors.

In the VR Business Sales office, we have an 88 point checklist for a buyer to review as part of their due diligence when they buy a business. This is an important step in your life and often times most people buy a business only once in their lifetime and it is important that you have the right professionals helping you throughout the process.

Pay Taxes and Increase the Value of Your Business

I recently took a call from a business owner who wants to sell his business. He was in the specialty wholesale food distribution business. He primarily supplies a certain food product to the grocery stores in Alberta, Manitoba, British Columbia and Toronto areas.

After our first meeting and before reviewing his financial statements, I concluded that this is a viable business, it has good customer lists, niche product with steady suppliers, dedicated employees and the owner has created a good systems for its employees that allows him to continue to grow the business and work “on” the business. However, the seller had developed some health issues and needs to exit from the business.

I suggested the seller provide me with the financial statements in order for me to determine the most probable selling price for the business before we head to market. I was told that I will receive it in a few weeks since the year just ended and the accountant is completing the financials. But the owner provided me with the breakdown of the revenue, costs of goods sold, labor costs and general expenses of the business in order for me to have an understanding of how the financials are made up. The numbers made sense and it all looked good until……when I actually received the financials.

The income statement showed revenues of less than 30% of what I was told and the costs of labor was significantly lower. So I decided to meet with the seller to find out why the numbers look so different.

That is when I was told that the some of the sales are paid in CASH and therefore are not recorded, and for the cost of labor, the employees are only paid for 37.5 hours a week although they work approximately 45 to 50 hours a week. The balance of the wages are paid in cash.

This scenario occurs more common than one might think in many small businesses across the country. One of the common reasons for business owners not recording their income is to avoid paying taxes.  However most business owner do not realize that when it comes to selling a business, having a higher net income and paying taxes, increases your chances of selling the business and for a much higher price.

Let’s do a simple scenario on two similar businesses operating in Alberta.

Company A did not record all of its revenue and only chose to record revenues of $500,000 and had a net income before taxes of $100,000. Assuming a corporate tax rate of 25%, this company would have then paid taxes of approximately $25,000.

Company B on the other hand recorded all of its revenue of say $600,000 and let’s assume that it had a net income before taxes of $150,000 Again assuming a tax rate of 25%, Company B would have paid taxes of $37,500.

Now let’s see how the value of this business differs between Company A and Company B.

Let’s say that businesses in this Company’s industry sells for 2.5x’s of net income before taxes. So Company A is valued at $250,000 ($100,000 x 2.5) and Company B is valued at $375,000 ($150,000 x 2.5) or a difference of $125,000.

If you now factor in the taxes that was paid by the owners of the two companies, Company A paid $25,000 in taxes and Company B paid $37,500. So the taxes saved by Company A for not recording its full gross revenue is ONLY $12,500, while it could forsake over $125,000 ($375,000 – $250,000) when it goes to sell the business due to it recording methods.

In addition, business owners often do not realize the risk of revealing their “CASH” income to strangers who inquire about their business.  My recommendation when it comes to cash income is to report it, especially 3-4 years before the owner plan to sell his/her business.

There is Something About Gas Stations

Over the years we have been fortunate to have had the opportunity to sell a few gas stations and c-store businesses in the Greater Edmonton area. Most of this gas stations and c-stores are independently owned and sometimes also comes with a car wash. We have noticed that each time our office has a gas station listed our number of buyer inquiries spike up by about 5 to 6 times. Our typical buyer inquires each week is approx. 20 to 30 and when we have a gas station on the mix it typically increases to about 100 that week. I recall on one particular gas station we recently sold, we received a total of over 1,400 inquires to our office over a period of 3 months on that one listing alone. I have no clue if a gas station owner can handle that number of inquires on their own nor would they want to deal with that many of the so called “curious lookers.” Because at the end of the day out of all those inquires we were only able to narrow down to about 3 or 4 serious buyers who was willing and able to buy the business.

One interesting observation that I was able to pick up while dealing with most of the buyers is the myth that gas stations are easy to manage and operate and it requires low skill employees and/or management. Most buyers want to buy a gas station and hire low wage store clerks to run the business while they cash in the profits. Unfortunately I have to DISAGREE with this assumption completely. Gas station business is one of the most demanding and challenging businesses to operate in the retail industry. For one, it is a cash business hence the importance to have good management control of the cash that comes in each day. Secondly it is an inventory intensive business, where it is very important for an owner to manage the inventory and knows what to buy and what not to buy based on sales patterns. Thirdly, gas station and c-store businesses are changing rapidly. Today this businesses sell more than just your average gas and chocolate bar. Today they include services like money transfer, phone cards, groceries, etc. as such an owner needs to be constantly involved in understanding what the consumer demands.  Furthermore, an owner who spends time observing his or her customers and gets to know them might be able to add products most desirable by its customers base and increase the revenue of the store.

When buying a gas station, there is also the issue of financing. As most buyers will find out that banks are very hesitant to finance gas stations due to both the lack of capital assets in the business and the potential environmental risk associated with it.

Most buyers are also misinformed on the profitability of gas stations and c-stores. Most of them talk to us with the expectation of wanting to make over $100,000 a year owning a gas station while not putting in 100% of their time and effort. Unfortunately the reality has been that most successful gas stations with good profit margins are family owned and operated and the owners are involved in the business 120% of the time. In my experience as a business broker, I have seen very few small businesses with absentee owners able to generate high profit for the owner and yield a return of over 15% on the cash investment. So for all those buyers out there thinking that owning a gas station business is an easy business to run…..please think again and I encourage you to speak with an experienced business broker first before planning to go further.

VR Business Sales Completes the Sale of the Bin Company

EDMONTON, ALBERTA–(Marketwire – May 23, 2012) – VR Business Sales, Mergers & Acquisitions of Edmonton, AB has just completed the business sale of The Bin Company Inc., a business that provides waste containers for renovation construction, yard clean up, seasonal clean up, garage de-cluttering, and many other do-it-yourself projects. The Bin Company has been established in the Edmonton area and has been the industry leader in bin rentals and garbage disposal for the last 8 years with 6 straight years of being the Consumer’s Choice Award recipient.

The Company was purchased by CERF GP Corp., the general partner of Canadian Equipment Rental Fund Limited Partnership.

The Seller, Mr. Newman stated “VR Edmonton made the process seamless and worry free. They managed the process from the first day we listed the business and providing us with multiple offers for the business.”

Jey Arul, President at VR Business Sales, Mergers & Acquisitions in Edmonton, represented The Bin Company throughout the transaction. VR Business Sales, Mergers & Acquisitions Edmonton facilitated all phases of the transaction, from initial analysis through closing. Details were not disclosed.

About VR Business Sales, Mergers & Acquisitions Edmonton

VR is Edmonton’s only business is representing 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.

What the Market Tells You

It never fails to amuse me how at least once a week I will come across an owner of a business that will tell me how he came up with the price of the business.

It often goes like this, the Seller will call our office for a meeting to discuss selling their business. I will then visit them at the appointed time (if it is at their place of business it will usually be after hours or weekends). We will then have a general discussion about their business, what they do, how long they have been around, some of the challenges and opportunities in the business….etc. sooner or later the discussion will star to narrow down to the business financials, revenue and the value of it. Most business owners will tell me that they have “no idea” on what is the value of their business. And most will tell me, “my accountant told me…“, “my lawyer told me…“, “my financial advisor told me…“, “my banker told me…“, etc…it seems like these days there are no shortages of “free opinion” on business values and suddenly everyone is an expert in business valuation.

I then try and educate them about what really matters about the business value……..”What the market tells you”, after all that is the one that matters most. Anyone can come up with a value of the business on paper, but what matters is what someone is willing to pay for it and produce a cheque with that number.

So my advice to all business owners who are thinking of selling their business in Alberta is this, get a business value opinion of your business from someone who has actually sold businesses…..not from those who can only tell you, but do go out and has to defend the price and get you that value.

10 Tips For a Smooth Transition After Buying a Business

At VR Business Sales we receive approximately 80 inquiries from Buyers on a weekly basis looking to buy a business. What are these buyers looking for? What are some of their questions and what do they want to see in a business they are looking to invest in.
Here are some of the questions we get on a weekly basis from qualified buyers:

1. What is the required capital investment I need to purchase this business?
2. What is the annual net increase in sales in this business?
3. How much of inventory I am buying and what is the inventory?
4. How much money can I borrow from the bank for this business based on its current cash flow?
5. What is the possibility of the owner staying on for a minimum of 3 – 6 months to assist with the transition of the business?
6. What makes this business different, special and/or unique?
7. What further defines the product or service in this business? Does it consist of bid work? Repeat Business? Written contracts?, etc.
8. How can I grow this business further?
9. What can a Buyer do to increase the value of this business?
10. What is the profit picture of this business in good times and bad times?

So if you are thinking of selling your business now or in the future, please take a few minutes and see if you can answer some of the questions above.

10 Things Buyers Want to Know

At VR Business Sales we receive approximately 80 inquiries from Buyers on a weekly basis looking to buy a business. What are these buyers looking for? What are some of their questions and what do they want to see in a business they are looking to invest in…….
Here are some of the questions we get on a weekly basis from qualified buyers:

1. What is the required capital investment I need to purchase this business?
2. What is the annual net increase in sales in this business?
3. How much of inventory I am buying and what is the inventory?
4. How much money can I borrow from the bank for this business based on its current cash flow?
5. What is the possibility of the owner staying on for a minimum of 3 – 6 months to assist with the transition of the business?
6. What makes this business different, special and/or unique?
7. What further defines the product or service in this business? Does it consist of bid work? Repeat Business? Written contracts?, etc.
8. How can I grow this business further?
9. What can a Buyer do to increase the value of this business?
10. What is the profit picture of this business in good times and bad times?

So if you are thinking of selling your business now or in the future, please take a few minutes and see if you can answer some of the questions above.