Casting or Recasting - What's the Difference?

Definitions of Casting. 1. The art of throwing a fishing line out over the water by means of a rod and reel. 2. The act or process of choosing actors.

Operating your own business may seem frightfully similar to either one of the above definitions! However, when it comes to valuing your business for sale purposes, there is a type of casting that is crucial. Recasting.

What “recasting” the financial statements does is:

• Provide a clear indication of the business value to help the owner form accurate expectations
• Allow for owner benefits such as salary, perks, and discretionary expenses to be added back into the value of the business so a future buyer can accurately assess its cash flow and future earning capacity.
• Enable buyers to make meaningful comparisons with other investment opportunities.

Recasting is one of many services provided by BC Business Brokers. We assist business owners in understanding financial statements so they can move forward with the completion of the business sale. We also bring qualified buyers to the table and assist them in finding the right business for their background, lifestyle and financial goals. Because selling a business is pivotal on its asking price, the consultants at BC Business Brokers are trained to perform an analysis of financial statements to calculate a range for the “Most Probable Selling Price” (MPSP) of the business. This range is what the current market will typically support.

BC Business Brokers provides outstanding resources, expertise and people who are dedicated to the success of its clients. And if you’re lucky, your business broker may even take you fishing… with a rod and reel that is! You are welcome to visit our local website http://www.bcbusinessbroker.ca/, or the international website www.sunbeltnetwork.com/vancouverisland. Feel free to contact us direct at 250-751-7917 or 1-877-289-0969 to learn more about what our business specialists can do for you.

Brewing Up A Business

It’s an exciting time for the BC microbrewing industry with provincial sales reaching a record high. British Columbians seem to be veering away from the big beers and gravitating towards “craft breweries”, also known as “microbreweries”.  Some use the terms synonymously, others say there’s a difference between the quantity produced and methodologies used. But one thing is certain: In Canada’s $8 billion beer industry, the numbers are up for traditional ales and down for industrial commodity beer.  According to Rick Green, Executive Director of the Craft Brewers Association of British Columbia, “BC is basically the leading province in the craft beer movement.”  That’s all great news for Jennifer Lewis and Travis Findlater, the new owners of Fat Cat Brewery in Nanaimo, who plan a relaunch of the newly branded business as “Wolf Brewing Co.” in February. According to Jennifer Lewis “the recipes will remain the same with 1 or 2 new ales coming to the market.” Michael Naprawa, of BC Business Brokers is pleased that this longstanding, local brewery has been sold to a team of owners with new vision and new energy to take the business to the next level.”  Lewis and Findlater were relieved that the overwhelming details of the business transaction were handled by a business brokerage firm in Nanaimo, BC Business Brokers, the company that marketed the business and negotiated the sale.  “We were very pleased with the services provided by Michael Naprawa—his business advice and professional contacts were invaluable to making the transfer of ownership go smoothly” said Lewis. Learn more on:www.youtube.com/watch?v=nydVgJ_9kdY


If you are considering small business ownership or the sale of your business, feel free to contact BC Business Brokers.  We can help.  Visit our local website at www.bcbusinessbroker.ca or www.sunbeltbroker.ca or phone 1-877-289-0969

10 Questions To Ask When Buying a Business—Do Your Homework!

Published in Nanaimo Magazine - December 2010 Issue

Buying a business is an arduous, yet rewarding process, and can take weeks or months. Because buying a business will involve investing a fair amount of money and time, it is critical to do your homework when gathering information about the business. This process is commonly referred to as due diligence.  It helps the buyer discover information such as whether the purchase price of the business is too high; the type and condition of the business being bought; bad financial situations if they exist, and contingent liabilities. There are so many questions to ask when considering the purchase of an existing business. In fact, there is not enough room on this page to list them. But let us give you a few examples that relate to financial, marketing, ownership and operations: 

1. Ask why is the seller selling—and verify the answer.

2. Ask to review the certified financial statements of income, cash flow and balance sheets for the last three years. If you borrow from a bank to pur- chase the venture, the bank will want to see them.  Recent audits and projections should also be reviewed.

3. Ask  to see the company’s Tax Returns (not the owner’s personal) for the last three years.

4. Ask for a copy of all documents of all outstanding indebtedness like notes payable, accounts payable, real estate and equipment leases.

5. Ask if the seller is willing to stay around for awhile after the sale to help with transition.  If so, have you discussed some compensation for his/her services during that transition period?

6. Ask if there has been any significant turnover of employees. If so, why? Ask to see employment agreements and organizational charts.

7. Ask about the quality of customer relations at the company. Review customer lists if possible.

8. Ask about the relationship between the company and its vendors. Do vendors display preferred, regular or irregular relations with the company?

9. Ask to review key contracts.  Also ask to see any litigation-related documents.

10. Ask for information about patents, copyrights and other intellectual property-related documents.

If you are contemplating small business ownership, feel free to give the Sunbelt Nanaimo office a call at 1-877-289-0969 or visit the website at www.bcbusinessbroker.ca or www.sunbeltnetwork.com/vancouverisland - we can help you find a reliable business that suits your background.  We are Certified Business Intermediaries with special training to help our clients analyze business opportunities and assess future probability of success.  President of Sunbelt Business Brokers, Michael Naprawa, is the Director of Education for the Canadian Chapter of IBBA (International Business Brokers Association), an organization that creates business standards and a code of ethics; and creates training and professional designations for Canadian Business Intermediaries.  Feel free to contact our Nanaimo office with your questions or comments.

View the article and check out Nanaimo Magazine here

Top 4 Myths About Selling Your Small Business

Most small business owners only sell their company once.
The steps involved in selling your small business is a complex process. Your goal as a business owner is to sell your company quickly and get the most amount of money in your pockets at the end of the day. Don’t fall for these common myths that could affect the sale of your business and ultimately the financial security of your family.
Do these sound familiar…

Myth #1 – I Can Sell my Small Business Myself

Entrepreneurs like to do things themselves. Many feel that they are qualified to sell the business without any assistance from professionals. This way of thinking can be a huge challenge to the successful sale of the company. Just because an owner can sell a product or service does not mean they can represent and sell their company.

There are three major issues if you want to sell the business yourself.

1. If you want to sell your small business yourself, confidentiality is lost.  What will your competition do if word gets out that you are for sale?
2. What will your clients, employees and suppliers think if they know you want to leave the company? Will your business drop? Will your credit from the bank be redefined?
3. Will you have the time? There is a lot of work to do when selling a business. You will need to compile the marketing materials, advertise the listing, screen buyers and determine if they are serious or kicking tires, and facilitate due diligence. In addition you need to focus on growing the company so that a buyer will not walk from lack of sales.

When it comes time to sell your business you need to keep focused on running the business and increase your sales. You need to concentrate your efforts on issues that matter to a prospective buyer not to take on new challenges.

Myth #2 – I’ll Sell my Small Business When I’m Ready

Certainly, it is important to be emotionally ready to sell. However, personal readiness is just one factor in selling. There are economic factors to also consider.
The price of your business for sale can be affected by industry consolidation, interest rates, unemployment and many other economic measures. Talk with a certified business broker about what it takes to sell your small business so that when you are ready your company is also.

Myth #3 – I Know What my Business is Worth

This is one of the key areas that owners find most shocking. Many small business owners have no idea what their business is worth in today’s market. For some business owners they base the value of the company on what they need for retirement. Others will tell you they want $100,000/year for “sweat equity.”  Still others utilize industry multiples. What happens if all these are false? What if the market is not willing to pay you what you think your small business is worth?
A third party valuation is a good idea for anyone seriously considering the sale of their business.  An outside valuation will include a thorough analysis of the business and the market it operates in. This will provide a solid understanding of the company’s growth potential, not some vague industry average.

Myth #4 – Selling a Small Business is Like Selling a House

When you prepare to sell your house it may take only a few weeks. Once your house is ready you bring it to market and get the word out to everyone that the house is for sale. Once you get an offer that you are happy with, you sign on the dotted line, turn over the keys and move on.
Selling a company is much more complex. A successful business sale usually requires a great deal of pre-planning, at least a year and maybe as long as three years to drive sales, develop key staff, document the operations and control expenses.
The average house will sell in less than four months, while the average business sale is nine months to a year.
Even after the business is sold, the seller can be expected to put in at least a few months, and possibly years of transition time, to help the new owner run the business successfully.
Go to market with realistic expectations by getting a professional valuation and using a professional business broker or intermediary.
These are just some of the myths that business owners need to be aware of before selling their business.
For more information talk with your advisor or business broker who specializes in helping business owners transition.

Article by Small Business BC posted October 4, 2010.

2010 Highlights of Small Business in British Columbia

Published October 2010

BC - The government has released SMALL BUSINESS PROFILE 2010, a 36 page report that profiles small business growth and development in the province. Here are the key highlights.
Small businesses account for 98 per cent of all business in the province, with approximately 395,900 small businesses operating in British Columbia in 2009. Of those more than half (56 per cent) were self-employed and the rest (42 per cent) had fewer than 50 employees.
Only Saskatchewan, which has 89.5 small businesses per 1000 people, has a greater number of small businesses per capita. This puts BC, which has 88.9 small businesses per capita, well ahead of most other provinces (the national average of 72.0).
How does this translate into economic value? Small businesses provide enormous support for employment and also contribute to the province's gross domestic product (GDP).
Small businesses in the province account for 57 per cent of private sector jobs, the highest rate nationwide, and employed 1,045,400 people in 2009. On top of this are 443,800 self-employed worker, who tend to be older, are more likely to work longer hours than employees working for others and are also more likely to be male.
In terms of production, small businesses in the province accounted for roughly 32 per cent of BC's gross domestic product in 2009 and 41 per cent of the total value of goods exported from the province in 2008.
Read the report SMALL BUSINESS PROFILE 2010 to learn more about the state of small business in British Columbia.

Article: http://www.canadaone.com/ezine/briefs.html?StoryID=10Oct18_2

Not Ready to Say "I Do"?

Published in the October Issue of Nanaimo Magazine.

See published article here: http://www.downtownmagazine.ca/nanaimo/nanaimomag.php

Even though you know you’re ready, sometimes it’s still hard to commit—to leaving that is. When the perfect buyer finally makes you the offer you’ve been waiting for, you get ‘cold feet’ and feel the urge to run from the proverbial alter. And then come the questions: “Do you take this buyer as the long awaited answer to your succession plan, as long as you live? Does anyone here object to the marriage of this buyer and seller?” Hmmm, you think to yourself... yes, no maybe, no, you’re not sure…After all, you were the one who took the biggest risk. You were the one who planted the seed, watered it and nourished that business from its infancy into the successful going concern it is today. Are you really ready to let it go? Did you get enough money? Maybe you should have held out for more?

It’s not surprising that business owners, however excited they may be about hitting the golf greens, moving or starting a new venture, signing on the dotted line and handing over the keys can be difficult process. That’s where BC Business Brokers use their skills to work with their clients in reaching their goals. If you are feeling the jitters about selling your business and opening the next chapter of your life, here are 5 tips to help you warm your feet:

1. Recognize that it’s normal to have second thoughts for any event that requires a life-altering decision.
2. Acknowledge that people fear the unknown, especially when it means leaving something that’s been a big part of their lives.
3. Stay focused on your original goal—if you want to retire or change careers, feel the fear and DO IT anyway.
4. Stay grounded—don’t get greedy! Just like the stock market, those who hold out for the highest price often lose it all.
5. Realize that your perspective is strongly influenced by emotion and thus, your outlook may be skewed.

BC Business Brokers utilize their knowledge of the industry within the context of the current economy to bring perspective to every transaction. These professionals receive in-depth training through the IBBA University (International Business Brokers Association), achieving their CBI (Certified Business Intermediary) designation. Affiliated with the largest global business brokerage and a network of 300 licensed offices worldwide, effective business advisors bring together buyers and sellers and foster a mutually agreeable deal for their clients. We coordinate each business transaction by working together with our clients’ lawyers, accountants and financial planners. Business Brokerage is all about relationships and connections—helping clients overcome the hurdles so they can confidently say “I do!”

If you are interested in exploring business opportunities or are contemplating the sale of your business, feel free to give the BC Business Brokers office a call at 1-877-289-0969 or visit our websites at www.bcbusinessbroker.ca or www.sunbeltnetwork.com/vancouverisland.

Help! What Is My Business Really Worth?

Published in Nanaimo Magazine September 2010 Issue.

To view the published article: http://www.downtownmagazine.ca/nanaimo/nanaimomag.php

Popular approaches often used to value a business are Income, Asset, and Market methodologies. There are five different Income methodologies, in each case businesses are valued based on company earnings. Buyers’ main concern is the true or absolute income of the company. The net ordinary income, reported on the profit and loss statements for tax purposes, does not depict the true earnings of the company based on non-cash, discretionary, & non-recurring items expensed by the owner.  Reported earnings are usually intentionally kept low to manage taxes. Therefore, to determine the true earning capacity of a business, the profit & loss statements must be re-cast during the valuation process. The business value is then calculated by applying a multiple, consistent with the industry and a weighting of the factors affecting the business, to the SDE or adjusted EBITDA.

Seller’s Discretionary Earnings (SDE) is generally utilized for businesses under $1 million in earnings. Typically, these businesses are owner-operated, the owner receiving a salary through the company.  It is important to determine the ‘owner benefit’ as opposed to the ‘earnings’ of the business. Add-backs or normalizations are applied to the pre-tax business earnings and expenses to adjusted fair market value.

Earnings Before Interest Taxes Depreciation Amortization (EBITDA) is generally utilized by larger companies with income in excess of $1 million to define the earnings of the company.  In most cases, the owner/investor does not actively direct the company operations and pays a general manager to perform that function.  Therefore, the EBITDA calculation differs from SDE as it includes the manager’s compensation in the earnings calculation as an expense.  EBITDA is a good measure of core profit trends because it eliminates some of the extraneous factors and allows a more "apples-to-apples" comparison.  However, EBITDA should not replace the measure of cash flow, which includes the significant factor of changes in working capital. 

These methodologies all use historical data and do not account for the current cycle or health of the industry in the current economy, nor do they account for the condition of the geographical area the company services. These two factors are the other important considerations in each valuation analysis provided by BC Business Brokers. To develop a full picture of the health of any given firm, a multitude of measures must be taken into consideration.

BC Business Brokers receive in-depth training in the 12 common accounting methodologies of Business Valuation through the IBBA University (International Business Brokers Association), have prior business ownership experience, and are provincially licensed and regulated.  If you are contemplating the sale of your business, or may be considering small business ownership, feel free to contact the Sunbelt Nanaimo office – we can help you.  Visit our local website at www.bcbusinessbroker.ca or www.sunbeltnetwork.com/vancouverisland or phone 1-877-289-0969.

7 Tips on How to Prepare for HST and Improve Cash Flow Management

HST is bringing along a number of changes in how business systems in British Columbia work. In the following article Mike Michell, the national director of small business at RBC, gives 7 tips on how to manage this change.

Like it or not, the HST must now be charged on most sales in Ontario and BC. The new tax will affect business systems and more importantly, it may impact your cash flow.

On the positive side, businesses in Ontario and BC should get more money back as the provincial portion can now be claimed as an input tax credit. However, if your business previously charged GST only you will want to make sure that you don’t treat the extra tax collected as new revenue. Remember that you will need to have these funds on hand to remit to the government.

To help you manage the change, consider these seven tips on how to prepare for the HST and improve your cash flow management from Mike Michell, the national director of small business at RBC.

1. Manage your projections. With the HST coming into effect, your cash flow projections may change. Some items that were not taxable before may now be taxable and visa versa. Consider how that will affect your business and plan accordingly.

2.     Update your systems. You will need to ensure that all business systems, including point-of-sale terminals, cash registers, computer software, websites, invoices, sales receipts, purchase orders and expense reports are charging the correct amount of tax.