Can I sell my company even if it is not profitable?

The question of the week is one asked by many of my clients:


Can I sell my company even if I have not made any profit the last couple of years?

The answer I give is a whole-hearted, "Yes!" 

You can always sell your company. The correct question though is: Will you receive a value sufficient to satisfy your personal objectives? 

Many of my clients have become used to withdrawing capital from the company and once profits erode, become nervous and think that they need to sell before profits decline further. This is where valuation and sale of your business by a professional EMD or corporate finance expert will make a significant difference. 

Although your historical EBITDA certainly is a factor, the value will depend largely on what EBITDA you can prove for the future. If, for example, you have landed large new contracts, you likely will be able to get value for most of the EBITDA that those contracts will generate over the years to come. 

I suppose the tougher question here is: Why are you selling your company now? If you have no choice, then you should prepare the best you can, potentially hire a broker  or Exempt Market Dealer to help you tell the story, and get the best value possible. 

If you don’t have to sell now and you think the future looks better, you likely will get more value if you wait. Taking on 30% sale to Private Equity would be your best option. They will fill up the tank again, revitalize your strategy and get you looking at what options you have - most often, hiring a CEO and encouraging you to do the work you love to do.

Jacoline Loewen is a Director of Loewen & Partners Inc., an Exempt Market Dealer, specializing in finance for owner operators and family businesses, specifically acquisitions, restructurings, sales, successions, strategy and private equity financing.

Jacoline began her career with Granduc Mines, Northern BC, and then Deloitte in their strategy unit. She developed a strategic planning model and published it in a book called "The Power of Strategy”. She also wrote "Business e-Volution" and “Money Magnet: How to Attract Investors to Your Business” (Wiley), which has been used by Ivey as a text book.

She is a Director on the Board of the Exempt Market Dealers Association (EMDA) responsible for brand and communications. She is on the advisory board of DCL International, Bilingo China and Flint Business Acceleration. She has been a Director for other Boards such as the Strategic Leadership Forum.

She is a regular panellist on BNN: The Pitch, a contributor to the Globe & Mail and National Post, serves as a judge for the UBC and the Richard Ivey School of Business’ Business Plan Competitions and is a guest lecturer at Ivey and Rotman Universities. Jacoline holds an arts degree in Industrial Relations from McGill University and a MBA from the University of the Witwatersrand.  Her MBA thesis was selected by Cambridge University and published by Cambridge’s Engineering faculty. 

Jacoline Loewen on 3 Rules for every Start Up - BNN The Pitch

Putting more into production of the The Pitch by pre-taping, rather than doing it live. We start today.
Up first to pitch are two start-ups that look promising for the financial returns and interesting, compelling products that they are already selling.
I will tell you their names later this week and give you a heads up on how they did with the private equity panel on BNN.
I thought I would add the 3 rules I liked the most from a great list by Mark Evens in The Globe and Mail on 10 rules for start ups. Here's Mark:

8. Understand that raising money is time-consuming and disruptive

From the outside looking in, raising venture capital looks sexy and exciting. The reality is that it involves a lot of grunt work, energy, numerous meetings and lots of patience to convince investors to commit. It also takes entrepreneurs away from running the business.

9. Recognize that once you raise money, it and your investors need to be managed

When investors decide to give startups money, they expect progress, traction and regular updates on what is happening. It’s not like they hand over the cash and then go away while the entrepreneur gets to do what he or she wants. Instead, startups need to continually manage their investors, which takes time and effort.

10. Enjoy the work because startups can be a 7/24 activity

Startups are not a 9-to-5 job that lets you go home at the end of the day without any work distractions. Startups are beasts that can be consuming so you had better enjoy the journey.

Jacoline Loewen on Professional services treating companies as an annuity

Most business owners and senior leaders build a relationship of trust with their service providers. The bulk of these relationships, generally, are the outsourced activities of accounting and legal work performed by accounting experts and lawyers.
When Private Equity partners are making an investment, it is my experience that they appreciate and respect those relationships.
One warning to family business owners, particularly those approaching the age of 50 who need to begin succession plans, your accountant and lawyer may not want to start any conversations that may change their circumstances. It pays for them to keep the Status Quo, the river flowing along the same route, so to speak, even if it is at a detrimental cost to the owner.
From years of observing the familiar level of complacency with lawyers and accounting firms, I often ask the same question, "Are you out for what's in it for you or for what's in it for the business owner?" As Adam Smith will attest, humans do go for the "What's in it for me?"
Getting an owner to change their goals for growth, for example, is just too risky. Getting a family business owner to contemplate a CEO other than themselves is just plain suicide.
As a business owner, understand this human fear of upsetting the person who is paying the bills and who could fire the lawyer or accountant from a nice, regular source of income.
Watch for complacency in your law and accounting service providers.
Often, the mere introduction of a competitive scenario from the introduction of Private Equity partners on the board, will yield better service at the same or even reduced cost. This is most often true with auditors, senior lenders and insurance and benefit providers.
Providing services should not be an evergreen annuity for the service provider. Yet it is too often the case.

Is Private Equity supported by pension funds?

Private equity is getting a schellacking thanks to Mitt Romney's time as the leader of Bain Capital.
As someone who has been in the PE industry and written a book about Canadian Private Equity specifically, the American Private Equity scene sounds like a Shark Tank, as compared to the Canadians who tend to be more like the dolphin species.I have met and worked with American funds and there is a wide range to their investment styles - some just want to give expensive money, some want to be on the board and push the strategy and a few will actually do some operational work. 
It is ingenuous to say the least, to tar the whole group with one brush. Worse still, it is destructive to the whole economy to make a Salem witch trial for private equity managers like Mitt. 
Private companies make up a large part of the economy in a majority of countries and the lion's share tend to be family owned. This type of ownership can  too often result in stagnating companies or declining businesses on average. Private equity partnerships helps these companies to grow, morph and find new, invigorating life. Without private equity shaking up the neighbourhood, it is too easy for all the competitors to be complacent. In Canada, McGregor Socks found new life with its private equity partners. Yes, they moved the manufacturing to China which upset the union. The business was going under and the two brothers were not working well together. McGregor saved some of the Canadian jobs and expanded a whole new range of design jobs in Canada. As for the union, well I studied Industrial Relations while at university and worked in a mining union which showed me the selfish nature of unionism. So let's put it this way. Unions have chased jobs away far more than private equity - if you want to talk about who is shellacking the jobs.
One of the themes emerging is that PE is "supported" by pension fund money. It is true that the largest sources of capital looking for a good return in Canada is the Ontario Teachers' Pension Fund and the Hospital Workers  Fund, both union funds. 

"With $107.5 billion in net assets, the Ontario Teachers' Pension Plan is the largest single-profession fund in the world."  OTPP has also been behind the largest PE deals in the world, including the BCE failed deal.

OTPP is busy investing in China now, taking Canadian earnings and allowing Chinese companies and their workers to get access to capital.  Do the union membership know their money is going to Chinese businesses? They would also be interested to know how much gets invested in the USA and how little in Canada.

Remember, those who can access capital get to grow their business. Investing Ontario teachers' money into Ontario businesses is actually the fairest investment. But when did "fair" be the pension's investment criteria? Would the teachers want their retirement money invested in OK companies or growth companies if it impacts on the amount they get for their retirement? You be the judge of that.

Private equity firms are glorified loan sharks

Private-equity firms are basically glorified loan sharks that take a hands-on management role in restructuring companies in return for a big cut. Sometimes it works. Sometimes it doesn’t. The biggest profits come from arriving on the scene when a target is weakest, and turning it around, but taxpayers can wind up paying for that in other ways, too.

Scathing condemnation, sweeping generalizations and hugely damaging misinformation for business owners. This article has it all. 
Read the full article here.