According to studies by the Business Development Bank of Canada (BDC), many small businesses in Canada will be put up for sale in the next few years due in part to the fact that 60% of Canada’s small business owners are 50 years old or older. BDC also estimates that 40% of GDP comes from the one million-plus small and medium-sized businesses in Canada; with the coming retirement of many small business owners, the bank theorizes that approximately $300 billion worth of business value will be transacted in the near-term future, with its research indicating that the fastest-growing areas for small businesses in recent years have been in sectors like manufacturing, construction, professional and technical services, and transportation and storage.
On April 17th, Business in Vancouver’s Business Excellence Series hosted a panel, entitled Buying and Selling a Business, at the Vancity Theatre, an event designed to explore issues related to the transactions of businesses and how those transactions can be fruitful for both the buyer and seller.
One of main points of discussion centered on the role that emotion and ego can occupy when a seller or founder is preparing to make a deal for his or her business.
“I’d say it’s about 90% emotions, 10% economics,” Cameron Chell explained. “And some of the economics just help validate your emotions. Depending on what your emotions are, you allow the economics to justify them. So this sounds a bit extreme, but I would suggest some really good coaching or counselling sessions before the process starts.”
Chell also spoke about the issue of ego for the seller or the founder, and how that can sometimes negatively impact the process, if not checked.
“Getting your ego out of the way is a big issue, for me at least,” Chell said. “I’ve seen it multiple times over and over with sellers and founders, if there’s some level of maturity where you can get your ego off the table, it’s likely your transaction and transition will be a lot more successful.”
On a related note, Erica McGuinness, a vice president at Sequeira Partners Inc., mentioned that oftentimes one of the most important questions for a seller to ask him or herself is whether it feels like a good time to evaluate the place that the business holds in his or her life.
“Looking at your personal objectives, is this a good time to retire?” McGuinness said. “Do you maybe want to slow down and bring on another partner? So starting to find out how your own personal family objectives fit into the landscape.”
Finally, Loren Mallett, who’s a partner with Alexander Holburn Beaudin + Lang LLP, where he leads the corporate/commercial and intellectual property and technology groups, noted that the anticipation that a buyer feels when close to making a deal for a business can often be detrimental. Mallett explained that the desire to close a transaction can overwhelm an investor’s ability to discern whether the deal is actually right for them.
“On the purchasers’ side, you’ve invested, you’ve spent a lot, lawyers are expensive,” he said. “You’re invested in the transaction, and my mentor often taught me that the first loss is often the best loss, so losing out on the first deal may benefit your bottom line better than you think.”