Chamber of Commerce Podcast

This morning I was interviewed by the General Manager of the Greater Peterborough Chamber of Commerce for a podcast series that they're working on. Stuart Harrison is a consummate professional and the interview went very well; in fact, it was fun!

We talked about the 10 Steps to a Successful Business Sale that I had recently posted here. I had told Stuart about this blog and asked for his opinion; to my delight he asked me to participate in the podcast series. This is the result: 10 Steps to a Successful Business Sale - The Podcast.

Enjoy!

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Selling Your Baby

Canadian Business Magazine - Selling Your Baby

I just came across an article on canadianbusiness.com about selling your business. Since I recently posted 10 Steps to a Successful Sale, I thought I'd post this for reference as well. Of note was the result of a survey that found that most sellers wish that they'd hired an adviser and had a professional evaluation done prior to starting negotiations.

Business owners who’ve been through the ordeal offer important advice to first-timers. A 2008 survey of more than 100 Canadian entrepreneurs who’d sold their firms reveals many of them would have handled things differently if they’d known what they were in for. The poll for Newport Partners, a Toronto-based financial advisory firm for entrepreneurs, found an overwhelming 78% of respondents agreed it was “an emotionally draining experience.” One respondent said, “I thought I was doing okay, but my wife said I was a basket case.”

The survey offers one measure of the high-stress time crunch during negotiations. Among the respondents, 51% concurred that “the sales process was so time-consuming, my ability to run the business was compromised.” That makes sense, given that most sellers handled the chore on their own. Just 40% hired an adviser with experience in selling a business, a step that 71% would now urge other sellers to take. “I wished I had some people to speak with who had my emotional profile and had been through the sale of a business,” said one respondent. And only 33% obtained a professional valuation of their firm, although 74% would now recommend that move to others.

“THE PRICE WILL REFLECT MY SWEAT EQUITY”: The amount a buyer is willing to pay will be based largely on a mathematical formula reflecting variables such as your firm’s revenue, profits and growth rate. There’s no bonus for guts and passion. Still, if it’s any consolation, you wouldn’t have achieved those numbers without your guts and passion.

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10 Steps to a Successful Business Sale

List from BDC - Closing or Selling Your Business - A Succession Plan Info-Guide

1. Have a valid reason to sell
2. Do not wait until you have to sell for economic or emotional reasons
3. Gather the information needed
4. Be a part of the marketing team
5. Maintain confidentiality
6. Think like a potential buyer
7. Do not let things slip because you are selling
8. Engage professionals who understand the sales process
9. Be patient and study carefully every offer
10. Help create a win-win situation

I came across this little list today and thought I’d expand on some of the ideas. While this isn’t an exhaustive list, it is a great starting point.

Have a valid reason to sell: Because you’re going out of business is NOT a valid reason and any potential buyers will smell your fear. Because you think some bonehead from *insert big city name here* will come along and just pay you an unwholesome amount of money is NOT a valid reason. Don’t waste your time or mine! If you’re selling to retire, or move on to other bigger and better things, however, THAT’S a valid reason!

Do not wait until you have to sell: Great advice! If you have a valid reason to sell AND you have a going concern (a business that is profitable and not in decline), then start thinking about how and when you’ll sell at least a year in advance and preferably 3-5 years in advance of putting it up for sale. If you wait until its too late, you’ll be in for a bumpy ride – and some lunatic will be driving!

Be a part of the marketing team: You really need to be active in the process. Just dropping a few papers off at your broker’s office and expecting miracles is not helpful. Expect to be called upon to meet with prospective buyers after they’ve been qualified by your broker as you are the only one who has all of the answers.

Think like a buyer: This is a big one; if you let greed get the better of you, you’ll get nowhere. Buyers are too savvy to be taken! If you were the buyer of your business, what information would you need to make a buying decision? What would you be willing to pay for that particular business? What kinds of concessions would you insist on? The answers to these questions will help immensely when you and your broker sit down to discuss any potential offers.

Do not let things slip because you are selling: If the shop needs painting, then paint it. If you need to order new inventory, do so. Selling a going concern means that it needs to actually be a going concern. That means a well stocked and well maintained business and its premises. See above: Think like a buyer!

Be patient: Finding the right buyer for your custom lure manufacturing plant is not as easy as you make it out to be, otherwise you’d have a line up of buyers salivating over the opportunity to purchase your business at any price! Selling a business, even a wildly successful one, takes time. A lack of an offer within the first four months, even nine months of an engagement with a broker does not mean that he/she hasn’t been working on your file. Be patient and insist on a communication plan that you devise in cooperation with your broker.

Engage professionals: Granted, you probably know more about your business than just about anyone else; but devising a marketing plan to sell the whole business and being able to follow up with that plan to find qualified buyers is not part of your regular business. Hire a professional(s) who are in the business of selling businesses and you’ll be glad you did.

Note: We rarely take on business listings anymore. This kind of engagement is very time consuming and very specialized. We’ve found over the years that most businesses that end up listed with REALTOR®s should have been sold long ago. See: Number 2 in the list above!

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Cap Rates Redux

Canadian property markets cushioned for 2009 - FP Trading Desk

Another story about how the Canadian market is not as weak as other markets around the world.  This is good news only in that it indicates that our landing won't be so hard as that felt by the US and other foreign commercial real estate markets.

While income growth is strong in all categories in Canada, rising cap
rates are cutting into total return. The cap rate reflect
(sic) the rate of
return on a property and as it goes up the value of the property
declines.


As posted previously, cap rates are a measure of the value of a property based on its income and the rate of return expected by the investor.  This is an inverse relationship where the lower the cap rate the higher the value and the higher the cap rate the lower the value.  As the economy weakens and the credit worthiness of the tenants goes down, the expected rate of return, the cap rate, goes up.


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What is a CAP Rate, and why should you care?

CAP rate is short for “capitalization rate” and, in a real estate context, is a measure of return on investment at a particular moment in time. For example, if a piece of investment real estate was purchased for $1,200,000 and the annual net operating income was projected to be $108,000 in the first year of ownership, we would say that the cap rate is projected to be 9% in that first year for that investment. I say, ‘for that investment’, because no two pieces of real estate are exactly the same and two similar properties in the same market place might have very different cap rates.


Knowing how to use the cap rate as a means of comparison is really handy as a result. For example, let’s say you’re an investor and you really feel that a reasonable cap rate based on your risk tolerance is 9.5%. You and your REALTOR® would research all of the available properties that fit your investment criteria and, using the cap rate, you could filter out all those properties that don’t meet you threshold for investment. All properties with a cap rate lower than 9.5% would be discarded and only those with returns higher than you hurdle rate would be considered.


The cap rate is a good measuring stick to start your decision making process, but it shouldn’t be your only measure. Why? Because it’s just a snapshot in time. It only looks at first year income and disregards all other factors like: increases in rental amounts over the term of the leases, expected appreciation in market values, potential tax benefits, reduction in possible vacancy, increases in rent through renovations, additional income potential not seen on the income and expense statement, advantageous financing, etc.


While there are many successful investors who only use the cap rate in their analysis of the income generated by a property, more sophisticated investors might use additional analysis tools like: IRR, Cash on Cash Returns (or ROI), before and after tax analysis, etc.


Ask your Commercial REALTOR® for assistance in doing these kinds of analyses and you’ll be far better able to make the right buying decisions over time.



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A good news story

Hot Properties - myKawartha

This article in our local paper, Peterborough This Week, just came out today. I, along with a couple of my fellow REALTOR®s were interviewed late last week about the state of commercial property in Peterborough and this was the result.

A good news story for a change! Thanks PTW.

The properties we have listed:

780 Argyle Street - $5.9M
114,000 square foot college campus with dormitories and gymnasium













303 Brock Street - $825K
approximately 10,000 square foot former retirement residence in the downtown business disctrict



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