Imagine the scenario: your friend proudly shares photo after photo of their newborn, convinced of their baby's unparalleled cuteness. Meanwhile, you're carefully navigating the fine line between honesty and tact, knowing that not every baby is universally adorable. Similarly, in the realm of business ownership, owners often harbor an unwavering belief in the value of their enterprises, nurtured over years of dedication and hard work. They've weathered storms, celebrated successes, and poured their hearts into every aspect of their operations, leading them to perceive their businesses as worth every penny they dream of when it's time to sell. But here's the reality check: not every business is as valuable as its owner perceives it to be. Just as not every baby is universally adorable, not every business commands top dollar on the market. It's a tough truth to swallow, yet an essential one for sellers to grasp. In this blog, drawing from our extensive experience as brokers, we'll navigate the complexities of these conversations, shedding light on the realities of business valuation and the art of confronting uncomfortable truths.

You Have Unrealistic Value Expectations:

Did you know, that over 70% of lower to mid-market businesses do not sell? Why do you think that is? You may be thinking, “my business would sell if I put it on the market today, I would be one of the successful 30% of owners that are able to sell their business for a profit.” Maybe you are right, but if statistics show us anything, you are likely not prepared to sell your business in its current state.

Most business owners see the revenue their businesses earn and assume that will transfer to high profits during a business sale. However, just because your business makes money, it does not make it valuable to a buyer. In fact, if the only thing you focus your energy on as an owner is revenue, your business is likely not valuable at all.  President and Owner of Alberta Business Sales and Commercial Ventures, Neil Gerritsen has had hundreds of conversations with business owners over the past 15 years and has this observation: "Many owners overestimate the value of their businesses, fixating on revenue figures while overlooking what truly drives value in the eyes of potential buyers. Emotion often clouds judgment, leading them to make decisions based on sentiment rather than a clear-eyed assessment of market realities."

Your “Well Documented Systems” are Actually Sticky Notes in a Trash Bag:

We all know someone that has their own “unique filing system.” You know the one. It is just a pile of loose receipts and IOUs in a recycled grocery bag in the bottom of a desk drawer. Good luck trying to sell a company with a grocery bag of finances and processes. No buyer wants to be handed a literal trash bag full of business processes. Having well organized, defined, and documented processes is one of the most important factors that can positively impact the salability of your business.

Another way of thinking about this: envision trying to piece together some IKEA furniture without the assembly instructions, three missing bolts, and the wrong size Allen wrench. It will be impossible to complete, and you will likely not make it five minutes into the process without cursing. Don’t put your potential buyers through this and expect great results or a sale.

You Get Cold Feet at the Thought of Leaving Your Business:

The reason business owners back out of the sale of their business is because they have spent the better part of their life working on their business. This business is quite literally their “baby” and the thought of giving their baby to someone else is the cause of great stress and regret. No potential buyer seems good enough to purchase and run your business, so you decide to back out before they get the chance. Neil states "Business owners often see their company as part of their identity, which can lead to feelings of unease about the future and moments of doubt or regret regarding their decision to sell.”

Proper planning for your next act helps to limit some of the stress and regret that can come with selling your business.

In conclusion, we've explored the intricate journey of selling your business, likening it to the universally relatable experience of showcasing a friend's "adorable" baby. With over 15 years of expertise at Alberta Business Sales and Commercial Ventures, we're committed to guiding you through every twist and turn of the sales process. Whether it's debunking unrealistic value expectations or emphasizing the significance of organized business processes, we're here to provide practical no nonsense advice.

Special credit to The Exit Planning Institute for the inspiration and insights in the creation of this blog.

Heather Miller General Manager, Alberta Business Sales and Commercial Ventures

Reach out to us today to learn more:

Vendor Take-Back, also known as Vendor Financing or Seller Financing, is a key component in business acquisitions. It refers to a portion of the purchase price—typically around 10-25%—that's withheld at the time of closing. Instead of receiving this amount upfront, the seller extends a loan to the buyer, to be repaid over a period of 2-5 years. Essentially, it means the current owner is lending money to facilitate the sale of their business.

For buyers, Vendor Take-Back offers several advantages. Firstly, it can enhance the likelihood of securing financing for the deal. Many banks and lenders require a portion of Vendor Take-Back as a condition for approval. Additionally, it can help maintain the seller's involvement in the business's ongoing success, which can be invaluable.

From the seller's perspective, offering Vendor Take-Back might seem risky, especially if their retirement funds are tied up in the sale. However, there are compelling reasons to consider it. Firstly, it often results in a higher overall value for the business, as it supplements the purchase price. Secondly, it can serve as a tax deferral strategy, minimizing the seller's tax burden. Furthermore, with proper protections such as security agreements and business recapture clauses, the risk can be mitigated.

In recent years, Vendor Take-Backs have become increasingly common in business deals. For example, in one instance, 17% of the total purchase price was held back, with deferred payments in the first year to support the buyer's financing needs. In another case, nearly 50% of the purchase price was structured as Vendor Take-Back to facilitate the acquisition of a business where the assets and equipment were valued similarly to the annual revenue. Such arrangements help both parties achieve their objectives in a mutually beneficial way. In conclusion, Vendor Take-Back can be a valuable tool for structuring deals that satisfy both buyers and sellers. By understanding its benefits and implementing it effectively, parties can navigate acquisitions with confidence and achieve favorable outcomes.

Craig Panek Broker, Alberta Business Sales and Commercial Ventures

If you have any questions on how vendor take-back works, or if it’s the right time to exit your business, reach out today:

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