The last year has posed unique challenges for business owners across Canada. Economic shutdowns, the shift to ecommerce, working remotely, and rapidly changing demand trends have left many wondering what to do next. This is a highly personal decision, but there are some guideposts you can use – and expertise you can call on – to help you navigate the options before you.
A forward-looking perspective
Before you make any decisions, it’s important to keep a forward-looking perspective when considering your next move. For example, whether looking at profit margins or the competitive environment, there may be emerging and evolving trends that could have an impact on your business in the short or long term that would inform your plans.
But this forward-looking approach also applies to more personal questions. Depending on where you are in your life, your priorities may be changing. Whether you’re looking to build on success, retire soon, take on a different role within your business or pursue other professional ventures, anticipating the future will also help you envision a clear plan for yourself and your business.
1. Taking the pulse of your business: Has it reached full profitability?
One of the first things to consider is the overall performance of your business. Whether or not your business is profitable – and more importantly, whether it’s likely to be profitable in the future – must be taken into account.
High or low profitability could lead you to want to sell, albeit for different reasons. Growing profits may contribute to a higher valuation and serve as a draw for potential buyers, though they could also be a signal to invest in your business and move forward in order to maximize your potential sale value. Growth may prompt you to think about expanding into new markets, buying up the competition or raising capital from investors.
If your business has been struggling to make a profit, it may be an opportune time to consider your options, including a sale. You may also want to evaluate your different business lines to see how they perform and restructure or divest accordingly. As discussed in our article “How do I restore profitability in my business?” there are also approaches you can take to regain business profitability, whether it’s looking at operational efficiency, revenue growth or cost reduction.
Taking the pulse of your business goes beyond just financial metrics. If your business has been struggling and you’re looking to sell, you may want to evaluate the strength of your management team, your internal processes and your assets – technological or other – and address any shortcomings. Strength in these areas could also help draw the interest of potential buyers and could support a higher valuation for your business.
2. What is your market environment?
After reviewing performance, the next step should be to assess the market environment for any trends that may impact your business. Doing a scan of the external environment could help you define a strategy that reflects your goals or needs. A good place to start is to look at the demand for private businesses – both what kinds of sale activity are happening in your sector as well as within the overall market for privately-held enterprises. Mergers and acquisitions activity in the private business sector has its own cycle that can diverge from trends among publicly listed companies and understanding whether demand is high or low can help inform your decision.
Next, consider consumer or client demand trends – the products or services people are purchasing – to identify patterns and any signals that suggest demand is going to change in the next five years. Consider a scenario in which you’re thinking about selling your business, and that the demand for your products or services is forecast to grow – it may be better to hold on to your business a bit longer. Waiting for demand to reach its peak could lead to a higher valuation for your business. On the flipside, if demand is forecast to decline this may mean a lower purchase price. If you’re looking for instant cash flow, there are other options than selling that you may want to examine, like a liquidation sale, for example.
You may also want to consider whether there are any emerging technological innovations that could affect your business in the future. Technological disruption is ever-present and thinking about opportunities and risks for your business along the path of innovation should be part of the equation.
Looking at what your competitors are doing and what their plans are could also help you assess the external landscape. Are they rolling out new products or services? Are they expanding into new markets? Have they adopted technology you don’t have? Relatedly, you may want to consider whether the market for your products or services is getting crowded, and to look at whether there’s any imminent or occurring consolidation.
It’s also key to consider the economic priorities of the federal and provincial governments. Whether they’re adopting policies that may have tax implications for your business or rolling out initiatives and regulations that could help or hinder your business down the line, keeping a tab on governments’ priorities is a best practice when considering your next move.
3. Where you want to go: What are your personal priorities?
This forward-looking approach also applies to your personal desires and priorities. Maybe you feel like you’re just getting started and are looking forward to building your business further, or perhaps you’re at a stage in your life where you want to spend more time with family and spend less time at work. Maybe you’re weary of running your own business after what has been a difficult year and you want to get out. Whatever your personal aspirations may be, a key part in planning for the future of your business, whether you remain part of it or not, is identifying what you really want for yourself.
In the case that you’re seeking a way to exit while hoping that the business will continue after you step back, you’ll want to focus on succession. Consider if there is anyone in your family or executive or management team that you want to take over, or if hiring a replacement from outside the business would make more sense. These can be difficult questions, but a successful handoff requires that the new leader understands the business and is up to speed on its operations.
Perhaps selling the business is part of the plan to fund your retirement. A primary consideration in this scenario is attracting the highest value you can when you sell your company. If you are hoping for a quick sale, your advisor can help you identify any short-term steps that might boost your sale value, while also guiding you through the sale process itself. If you plan to spend more time building your business, it’s still a good idea to set a broad timeline as to when you hope to exit your business so you can be ready when the time is right. In a perfect world you would begin your preparations 2-3 years prior to your exit.
Ideally, your business should be ready for sale or transfer to new leadership when your planned exit is approaching, but we understand that this is not always the case. If you’re looking to exit quickly, you may want to proactively gauge the interest of potential buyers, see whether your employees would want to take over ownership, or liquidate your assets if the business isn’t profitable. Again, depending on the performance of your business, market environment and personal priorities, there are options available to you. It’s a matter of choosing the course that best meets your situation aspirations.
Have questions? Let us help.
Figuring out what’s next for your business is a multifaceted decision—but you aren’t alone. We understand the issues that affect your business and will work with you to find the best way forward. Whether you're looking to get out of business now or hoping to grow your company before a planned exit, our advisors are in your corner.