By Peter Janis
From the Floor
Where Do You Go from Here ?
Who would buy your company anyway ? Part 3
This is the final part in a series about preparing your business to sell . For part one , “ Prepping Your Business to Sell ,” see the February / March 2021 issue of CMT , and for part two , “ Is your business a make-work project ?” see the April / May issue .
My father retired from Bell Canada at the age of 58 . So , I figured that if I could retire at the age of 60 , I would be happy . I also had a dollar figure in mind , so I needed to grow revenues to achieve this target . The value of a company is made up of two major components : tangible financial assets and bottom-line profitability , along with intangibles known as good will .
The tangibles are easy : the value of the inventory and the net profit that is realized at the end of the day . This , by the way , is where many get caught . A company is only a company if it can be valued as a stand-alone entity . I have heard more than one owner say , “ My company made over $ 100,000 last year !” Yet , this all too often includes the owner ’ s salary . So , when you deduct $ 80,000 for a manager ’ s salary , the company actually made $ 20,000 . Once a realistic bottom line has been assessed , one usually applies multiples to factor in intangibles such as future growth , standing in the market , and the value of the customer list . Beauty is in the eye of the beholder . If you are selling a sexy picture , you will attract a higher price .
There are typically three types of buyers : The investor , the strategic buyer , and your family .
The investor or venture capitalist is looking to put money into a company with the expectation that the company will generate a significant bottom line profit and that dividends will be forthcoming . They expect to invest in a well-run company with a strong management team . There has been a recent trend whereby venture capitalists have shifted to direct ownership due to the vagaries of the market and near-zero interest rates . If your revenues are above $ 10 million annually , this could be an option . Investors typically pay out in tranches , with a higher down-the-way payout when promised goals are achieved . In this scenario , you will likely have to stay on for some time to reach these goals .
The strategic buyer may have a similar business to yours and is looking to expand . For example , it could be an audio-visual business that wants to diversify by purchasing a music store . The fastest way to expand is through acquisition . The beauty with targeting a strategic buyer is that it generally has a team that understands your business and , thus , will not require hand-holding . This means that you may not be required to stay on . For some Canadian retailers , the easiest “ out ” is to merely call Jack Long and work out a transition period . The owner becomes the manager and the stress of running the day-to-day business is left to a well-seasoned management team .
I like the concept of finding a strategic buyer . When I decided to sell Radial , I had the lofty idea of selling the company to Shure . With sales of over $ 650 million USD , Shure clearly had plenty of cash to buy me out . So , I devised a plan by first getting Shure UK to become the Radial distributor . I then pursued Shure Germany and eventually added the Shure distributors in France , Korea , Mexico , and so on . Shure corporate in Chicago had inside knowledge of Radial sales and in my view , combining the number-one selling stage microphone with the number-one selling direct box was a marriage made in heaven ! I met with the president of Shure in Chicago and put a bug in his ear . This whole process took several years to put all of the players in place . Then out of the blue , the president decided to retire and the new boss did not see Radial as part of her strategic plan . The point here is that I did not wait for a buyer to come in the door , and even though it was not my desired outcome , I did what I could to make it happen .
The last option is to either pass along the company to a family member or negotiate a long-term buyout with your key staff . If you have a family member that has the gumption and work ethic to carry on , then – so long as you have amassed a reasonable retirement package for yourself – this can be a noble option . However , not everyone is cut out to run a business , so wishful thinking is no recipe for success .
Another option is to sell the company to your staff or management team . You have to trust your spider-senses and ask yourself if the team has what it takes to take the reins . This begins with an honest evaluation of the bottom line , which will determine the company ’ s ability to buy you out . As staff will likely not have a significant down-payment , funds will only flow to you over time . And there is always a chance that those that are taking over will fail . This may put you right back behind the counter !
This column is the property of Peter Janis and authorised to be published and republished by NWC .
Formerly the president and CEO of Radial Engineering Ltd ., Peter Janis has been in the Canadian music industry for over 40 years , working in retail , distribution , and manufacturing . Peter now offers consulting services with his firm Exit-Plan , where he assists business owners in increasing their sales and enhancing the attractiveness of their business in preparation for retirement . For more information , visit www . exit-plan . ca .
CANADIAN MUSIC TRADE 9