3 Case Studies
In this blog series we’re going to review three case studies: a Best-case scenario, a Worst-case scenario, and an Average scenario, to give you a sense of all the things that might come along during the sale of your business.
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First, I will start with the "AVERAGE SCENARIO" ......
This listing was a manufacturing company with 15 employees in Vancouver which I listed for $1,100,000. I was referred to this client on August 8th and they formally engaged my services (with a signed listing agreement) shortly after on August 14th after an initial phone call and subsequent in-person meeting.
The first thing I did was perform an initial high-level valuation to ensure my client had realistic expectations for a sale price. When I completed that initial valuation, I told my client I believed their business would sell for approximately $800,000 with a recommended asking price of $875,000. My client then explained to me a number of positive things on the near horizon for their business, including a significant new client who had just been signed, and key new sales-hire who was expected to grow the revenues. They then explained to me that they were also not wanting to sell for less than $1,000,000. So I outlined a plan for them explaining where their business would need to be, in order for it to sell at their desired sale price. We decided to wait 4 months until just after their corporate yearend of December 31st. Then in mid-January, I did a revised valuation. And although revenues had improved significantly, their profits had not caught up yet - they had not materialized enough increase in profitability to justify a $1,000,000 sale price yet, even though things were looking very positive with their business. So we waited again, until after their Q1 revenue report on March 31st for a further-revised valuation. And at that point, the business had grown significantly enough, and a number of other key factors were going positively in the business, that I was able to state a $1,000,000 valuation was realistic. It took a little while to get everything sorted out, and we got the business officially listed on the market on May 28th with an asking price of $1,100,000 with an expectation of selling it for $1,000,000. This listing date was almost 10 months after my initial meeting, however it was definitely the right strategy, as there is no point ever to putting an over-priced listing on the market that will just go stale and not attract any reasonable offers.
Once marketed, I was able to get this listing under signed offer within 30 days, however part way through the initial due diligence, we learned that this buyer was unable to secure his financing, even though we had gotten the business itself pre-financed with the Business Development Bank of Canada (“BDC”). Typically, I will have a greater assurance of approval, however I explained to my client that this prospective buyer only had a 50/50 chance of being approved, and we decided to proceed anyhow. Sometimes you have to take a bit of a gamble on a prospective buyer. Then once that deal fell apart, I was able to get it under offer again within 45 days and we closed approximately 75 days later.
On average this due diligence process is about 60 days, however we extended it a bit longer to close on the month end, which is easier for reconciling with the bookkeeping after the closing. In total this deal took significantly longer than average to close. (This deal took almost 17 months, and the average is approximately 9 months.) However the end result was the right buyer at the right price! like these results? Contact your Vancouver business broker, Jason Brice to get a quote!
Key take-away:
There are 3 key elements to every business resale that sellers need to consider: The deal can happen quickly, the deal can happen smoothly, or the deal can happen for a top dollar. Pick any two! …….. because no deal ever has all three elements.
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Coming soon ….
I will discuss the "WORST-CASE SCENARIO”
I will discuss the "BEST-CASE SCENARIO”
