Times change and so do citizens’ needs. It is essential for municipalities to reflect this as they plan infrastructures, equipment and the sport, leisure and culture services offered.
During the 60s, 70s and 80s, this was a relatively easy exercise, for many reasons:
- Demographic forecasts were growing;
- Clienteles were uniform;
- Citizens needed few activities;
- The services were provided almost exclusively by the municipality.
It’s clear that this same exercise now requires municipal leaders to have more skills and abilities than in the past.
In the past 20 years of our sports, leisure and culture practice, we’ve identified seven complex, challenging planning issues.
Clienteles are varied
They are in all age groups, come from various cultural backgrounds, have different ways of life and use services differently. This new information must be properly understood to identify innovative municipal strategies.
Competition is increasing
More and more businesses and organizations provide leisure equipment and services, sometimes placing the municipality in a competitive situation. This situation should be transformed into an opportunity to enter into partnerships. While some municipalities have already opted for this model, in the coming years, it will become more common and essential. To give just two examples, consider the need to coordinate with other government bodies regarding community and sports equipment in schools and the cultural equipment financed by the Ministère de la Culture.
Trends are evolving rapidly
Citizens’ leisure tastes and interests can change at the speed of light, which means that a municipality’s investment choices can quickly become obsolete. When making development and management choices, municipalities must ensure that their infrastructure and equipment will stand the test of time and not become costly and obsolete. They sometimes need to make difficult choices that consider citizens’ concerns and the social and political context.
Managing finances must be equitable
In the coming years, there will be increased pressure on ensuring financing equity between activities and organizations. In the past few decades, municipalities made choices to support activities and organizations (directly or indirectly, by financing infrastructures). With the sometimes explosive growth in the number of sports, leisure and cultural organizations and activities, municipal authorities need relevant, powerful analysis and decision-making tools. Unlike Issue on partnerships, where municipalities have made some inroads, there is still much work to do to ensure the fair and strategic management of municipal financing for sports, leisure and cultural organizations and activities, for example, events and festivals.
The environment is taking on greater importance
It is increasingly important to consider climate and technology issues. Some of the infrastructure and development planning challenges include outdoor skating rinks, air conditioning in schools (gyms and common areas, etc.), parks, green spaces and public spaces (shaded areas), etc. In terms of technology issues, there is a distinction to be made between improving management tools and service-related tools (for example, the library of the future). Technological progress will help managers improve client services and support the development of true scorecards and performance indicators (in line with Issue on financing).
Citizens are becoming increasingly involved
Over the years, citizens have become increasingly involved in the planning process. However, they no longer limit their involvement to surveys or meetings with organizations, they want to be part of the analysis and determination of strategic directions. They even want to take part in the equipment concept and design (co-creation). Municipal managers therefore need to master new planning skills and abilities.
The increase in tools requires extensive coordination
The extent of sports, leisure and cultural planning tools available to municipal mangers is expanding: policies (family, cultural, healthy life style, etc.), master plans (parks, green spaces, sports or cultural equipment, etc.), segment strategies (elite sports, technological or climate adaptations, public health, youth, etc.). While these tools are essential for a structured planning process, they should be fully integrated with each other and very often, we find that this is not the case.
The financial and political importance of properly managing municipal sports, leisure and cultural events requires municipal decision makers to find new ways of planning infrastructures and the service offering.
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Selling your business is a big decision, one that should be well planned, often years in advance. In many situations, it may be to your advantage to maximize its value.
Several internal and external considerations come into play. While it may not be possible to impact external factors (such as the competition or government regulations), the same is not true for internal ones.
To increase your business’s value and maximize its selling price in a potential transaction, we recommend the following.
1. Sales growth
Investors will find a developing business more interesting than one in decline. If you can show sustained sales growth, it’s more likely that a potential buyer will be prepared to pay a higher price.
2. Earnings quality
This is vital. How can you expect someone to be interested in buying a business with astronomical sales and no profits? For a shareholder or business owner, earnings (or cash flows) are the return on invested capital. The higher they are, the greater the value.
3. Human resource stability and quality
A buyer will find an organization with a well-structured work force more attractive (regular employee turnover, well-trained employees, low occupational accident rate, etc.).
4. Brand image
This includes the reputation of the business’s products and services on the market as well as the quality of its marketing process.
5. Contracts
The existence of exclusivity contacts, procurement agreements, advantageous leases, franchises or patents can set the business apart from its competitors, providing added value.
6. Sound financial situation
Is the debt level appropriate? How does its working capital compare to the industry? The better the ratios, in comparison with other industry sector businesses, the better its chances of a higher sale price.
7. Client variety and loyalty
It is generally acknowledged that 20% of clients generate 80% of revenues. While a diversified clientele is important, it’s also important to instill client confidence and encourage loyalty by being attentive to their needs.
8. State and value of tangible assets
Consider the business’s capital assets (land, building, state-of-the-art equipment, etc.).
9. Growth potential
This could be unused production capacity that a potential buyer could use to increase sales and earnings.
10. Market niche
A business in a market with attractive growth perspectives is more appealing to a buyer, it should be innovative and always stay ahead of the competition.
We can help you plan your business’s sale and maximize your sale price. Our firm has experts and contacts in all areas of management, particularly tax, business valuation, human resources and financial advisory.
Don’t hesitate to contact us if you have business valuation questions or requirements.
01 Mar 2018 | Written by :
Donald Savard is an assurance expert at Raymond Chabot Grant Thornton. Contact him today for good...
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In the context of evolving markets and generational changes, it is vital to establish a competencies development plan to address the resulting challenges.
In many cases, business transferors have an entrepreneurial profile; this does not necessarily correspond to the typical definition of managers. They enjoy being in the thick of things, using a trial and error approach, relying on their business instincts. As a result, they often have an informal, somewhat patriarchal management approach, with few rules, little structure and no management programs.
The transferees, on the other hand, will likely be facing different challenges such as:
- Market growth,
- More employees,
- Specialization and increased demands,
- Financial and legal controls.
New organizational needs may arise in terms of the structure (official organizational chart), internal operations (management committee, management scorecards and marketing plan) and human resource programs (employee handbook, compensation structure, etc.).
Prepare a profile
It’s essential to clearly define the required skills for the management positions while building in some flexibility to share responsibilities. For example, among others, a general manager should have strategic vision, finance skills and the ability to delegate.
Assess competencies
The transferees’ current abilities should then be evaluated using a variety of tools: analysis of their experience, behaviour interviews, psychometric and aptitude tests. A common misconception in many family businesses is that management skills are innate, this must be avoided at all costs. Some transferees may not want a management role, they may prefer to be on the operations side. Properly evaluating their profile will be useful for both them and the business.
Draw up a plan
Lastly, a competency development plan should be drawn up for each transferee filling a key position to ensure that they are able to take on that role efficiently. There are numerous options: training, internal or external coaching, discussion groups, etc. The transferor could serve as a mentor, but this role should be clearly defined. The transferor’s knowledge and experience can then be passed on to the successors and foster a successful transfer.
A business’s activities can be looked at from many perspectives: rational, financial and operational. These are significant management requirements, but the human aspect is just as important, and in a business transfer context, it is most often at the heart of discussions. Psychometric tests and a competency development plan are key to the succession plan discussion and implementation process to ensure a smooth transition.
Contact an expert in your region to find out how Raymond Chabot Grant Thornton can support your business transfer process!
Watch this video (in French) about Le Brise Bise.
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The sale of a business is generally one of the most important transactions of an entrepreneur’s life, and often, the most complicated. Moreover, when this is a family transfer, the transaction could be even more sensitive, given the emotional aspects involved that can influence the sales price.
In any business transfer, “the” big question that keeps coming back is: “How much is my company worth?” The challenge is to determine a price that reflects the fair value of the SME, which satisfies both the transferor and transferees, and that ensure the business’s longevity.
This is why it is essential to establish the business’s value with a thorough, objective and structured process.
Avoid conflicts
For entrepreneurs who dedicate their lives to building their SME, transferring it can be a painful, emotionally charged experience. Also, as they rely on the proceeds from the sale to fund their retirement, in their eyes, their business is worth a lot of money…sometimes more than its fair value.
If they have children, entrepreneurs usually want them to take over the business, but this is where two perspectives and two realities may collide. On one hand, entrepreneurs want to get the most money possible for their SME. On the other hand, the acquisition of the family business is a major investment for the children; do they have the financial means? For the children, the value of the business equals their ability to pay.
These issues could cause resentment and tensions within the family. Using the services of an expert who can give transferors and transferees a fair and neutral opinion about the value of the business, can reduce the risk of conflicts. Furthermore, this ensures a fair treatment for the children who will not be involved in the business after the transfer.
Main traps to watch out for
Business valuation can include several traps. How many times have we heard entrepreneurs propose unbelievable amounts about the value of their SME!
Numerous entrepreneurs tend to use a market-based valuation method. One of the most popular calculations, based on transactions of comparable businesses, consists in multiplying earnings before interest, taxes, depreciation and amortization (EBITDA) by a multiplication factor.
The problem is that transferors tend to overestimate this factor, by relying on hearsay because it’s difficult to obtain reliable information about comparable transactions. In fact, unlike real estate transactions, there is no register where the sale prices of businesses are recorded.
Instead, business valuation experts prefer a performance- or earnings-based valuation method, which essentially relies on the business’s ability to generate earnings. This method therefore procures a more precise measurement of the SME’s fair value.
A few other key points to consider when evaluating a business
- Don’t forget any assets or liabilities.
- Take into account capital investments required to support the business’s activities.
- EBITDA does not include interest on debt. Therefore, don’t forget interest-bearing debt in the calculation of the business’s value.
- Consider unusual salary adjustments and performance bonuses that might have influenced EBITDA in the course of the last year.
- Do not count the economic benefit for the business of owning a building twice. If you assess based on earnings and the business owns its building, the economic benefit of this asset is already included in earnings (since the business does not pay rent). Don’t duplicate its value by adding the building’s value to that of the business’s activities.
- Take the time to perform a due diligence review before buying a business, that is, one that draws up a detailed portrait of the company’s financial, commercial, legal and operational aspects.
One last tip
Above all, do not try to sell the business to your children if they don’t have the financial ability to buy it at its fair value. Consider other solutions that would benefit all. For example, you could use the proceeds from the sale of your SME to help your children start up a new business or invest in other projects with them.
Would you like more information about the business valuation process? Don’t hesitate to contact our experts. They will be pleased to help you.
23 Feb 2018 | Written by :
