Becoming A 2021 Business Owner

February 21, 2019

Becoming A 2021 Business Owner 

In a few quick months,COVID-19 has devastated Canadian small businesses. With the average cost exceeding $214,000, businesses have reduced their staff by 30% to survive. As we slowly restart the economy, we must plan for our 'new normal'. This requires us to adjust many of our 2020 goals and to focus on 2021. Our team sat down to discussed this transition and business ownership in a COVID-19 world.  

Keith Mackenzie and Mike Lenz are Co-Founders of Paratus Business Resources. During their careers as business brokers, Keith and Mike have advised on hundreds small business transactions. Before their brokerage careers, they have both acquired, operated, and sold businesses. 

You have both been business owners and brokers during recessions. What have you learned from being on both sides of the table? 

ML: You can't make assumptions. 

The last recession I faced as a business owner was while operating my printing company in Toronto. Since printing is a cyclical industry, we started losing our smaller contracts. We were fortunate as our largest customers maintained the same size of orders.Although we had no idea that this was going to happen at the time. Expecting the worst case scenario to happen, we started reaching out to new customers.This ended up helping us two ways. First, we were able to balance out the smaller contracts we lost. Second, we actually ended up with a bunch of new clients as our competitors went out of business. 

As a broker during the 2008 Financial Crisis, I helped my clients navigate the sale of their business. As my clients learned, it is always more difficult to the valuation you want when you need to sell. When forced into selling your business, you need to be more creative. For example, sellers may need to provide additional vendor financing or include an earn-out. 

KM: It is time to cut costs and focus on your customers

I have been through 3recessions as both a business owner and broker. In all 3 cases, the financial structure of a company was a significant factor in its likelihood of survival. 

Here are a few areas to strengthen your financial position during this time:  

  • Cut costs and analyze your spending. Examine     each line item and ask, "is this essential for the operation of our business?" 
  • Optimize your cash conversion cycle. This refers to reducing the time it takes for you to generate cash from your product/service. 
  • Re-engage with existing customers. Have their needs changed? Could you offer them new services? Short-term discounts     could help earn customer loyalty and save you from losing 100% of a     sale. 
  • Take     advantage of Government funding. Continue     to track what funding is available to you. The long-term impact of     COVID-19 is currently unknown. The same uncertainty exists with future     possible funding. 

COVID-19 feels different to the 2008 Financial Crisis. In 2008 we had some semblance of a path forward, whereas today there still is a high level of uncertainty. Owners need to focus on what they can control, which is keeping their businesses lean and dynamic. 

What impacts have you seen on your client's businesses? What should they be focusing on right now? 

Both: Deals have fallen apart for hospitality and tourism related businesses. While less interested in these sectors, buyers are still active in others. Creative deal structures (such as earn-out provisions) are helping to move deals forward. 

ML: If there was ever a time to"work on the business" it is now. It is time to get your business systems in place and examine your products and services. If you were planning on growing in 2020 you may need to reset expectations. As you go through your to-do list think about what items are urgent vs. important.   

KM: With the 75% wage subsidy, theGovernment has tried to keep employees with their employers. This is beneficial as your employees are one of the greatest assets for your business. Supporting your employees today will pay dividends in the future. 

Mike, what is a way companies could preserve cash right now? 

ML: Something that worked for us in the past was to pick up the phone and call our suppliers. Whether it was to negotiate order volume or payment terms; you won't know what is available until you pick-up the phone. Remember that your relationship with vendors is a two-way street. 

As a business brokers, we have quickly seen a Seller’s Market turn into a Buyer’s Market. Does that mean business owners should no longer consider selling their business? If they do sell, should they expect a lower valuation?

KM:  Right now the saleability of a business depends on what industry it operates. So far what has been different from 2008 is that there has not been a freeze on financing. Funding is still available from Governments and banks to put deals together. 

ML: My gut is telling me the market will settle back down. Despite our isolation, there is a tremendous sense of community in the world right now. Community can create a lot of goodwill in the context of main street business sales.  

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