Business Excellence Series: Business Growth

really big shoe Native Shoes CEO Scott Hawthorn faced challenges when the company grew so quickly, the product sold out

growth ops MNP consultant Natalia Venida uses her HR expertise to help companies strategize

risk and reward GrowthPoint Group CEO Neil Belenkie shows companies how to mitigate risk as they invest in their business

sage advice Ravy Mehroke sought an unofficial mentor with experience in a similar business before she launched eyebrow-sculpting salon Bombay Browbar

september 2013 printing partner

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Grow in the Right Direction Growth doesn’t just happen. It’s 10% by chance and 90% by design. It’s having the insight and knowledge to ensure all elements are working together so you can capitalize on opportunity.

As one of the fastest growing accounting and business consulting firms in Canada, we know how to grow business.

Contact Mackenzie Kyle at 604.637.1596 or mackenzie.kyle@.mnp.ca

september 2013

Growing pains

Contents

In the business world, growing companies are often envied. Most people worry about increasing customers, sales and profits; not about being too successful. But that’s a serious concern if your supplies or service can’t keep up with market demand, if you don’t have strategies to deal with growth or if you have not planned your seccession or exit strategies.

4 Do you know where you’re growing?

In this quarter’s instalment of Business in Vancouver’s Business Excellence Series, we examine what it takes to build a company and grow it successfully and how to avoid the pitfalls that come with expansion.

Successful companies don’t grow by accident – they plan for it

6 Ask the experts

Family members can provide help but are not always the wisest choice

8

Growth spurts

Expanding businesses are running to catch up with increasing demand

Accompanying the business growth edition is a breakfast on the same topic with speakers Natalia Venida, manager, MNP; Neil Belenkie, CEO, GrowthPoint Group; and Amielle Lake, founder, Tagga Media.

12 Growing without risking it all

The breakfast takes place September 26, 7-9 a.m., at the Marriott Pinacle Downtown. Attendees are invited to stay after the panel discussion for bonus break-out sessions – led by Vancouver business experts from 9:15 a.m.–10:15 a.m. – to delve more deeply into the panel topics. Visit www.biv.com/events for more information.

14 Game plan for the future

– Baila Lazarus, news features editor, Business in Vancouver

Completing weekly strategic goals enables company to transition smoothly

A detailed exit strategy can help owners understand the value of a business and include plans for growth

16 Transition points

Hiring a solid management team is key to having a succession plan run smoothly

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Do you know where you’re growing?

Successful companies don’t grow by accident – they plan for it

By nelson bennett

A

t first blush, the Oppenheimer Group and Avigilon Corporation don’t seem to have a lot in common.

The former is a fresh-produce distributor that was founded in 1858; the latter, founded in 2004, makes high-definition surveillance cameras.

But both are success stories about companies that experienced rapid growth in recent years – growth that was planned for and managed in ways that avoided It’s important to some of the growing pains that some companies may experience, like high employee churn rates set measurable and financing issues.

Natalia Venida, a human resources specialist goals, otherwise you with the businesses consulting firm MNP Connever know if you’re sulting, spent 11 years with Oppenheimer as senior HR adviser when the company doubled in size and achieving it or not tripled its revenue, and now uses the company as a model of planned growth.

Headquartered in Coquitlam, Oppenheimer now has revenue of $550 million and distribution Alexandre Fernandes centres throughout North America. Venida credits CEO, Avigilon Oppenheimer CEO John Anderson for his consultative approach to strategic planning.

“He had input from everyone in the company as far as what the strategy should be,” Venida said.

The company held a planning session every year – followed up quarterly – that involved a group of about 10 employees representing different areas of the business sitting on a planning committee.

Anderson personally visited all offices to talk to employees, giving them updates on the company’s strategy to make sure they understood what the grand plan was.

For some small companies, a major barrier to growth is access to capital, so for them, the best growth strategy might

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4 Business IN VAncouver business Excellence Series

be to position themselves for acquisition.

Premium Brands was a $100 million company in 2001 and now has a market cap of $400 million. The company grew by buying small specialty-food companies, with the view of helping them grow their own brands. To date, Premium Brands has bought 41 Canadian and American companies.

“We had a lot of success buying smaller companies and working with the existing management team to grow them,” said Premium Brands CEO George Paleologou. “They’re good companies, they know what they’re doing, it’s just that they lack the capital to grow.

“We never want to lose the intellectual capital of those companies, so we’re not likely to make an acquisition and go in and change the management and get rid of everybody.

We help them with capital and other resources to help them grow.”

Paleologou adds that successful companies don’t grow by accident.

“You have to have a clearly defined strategy,” he said.

Avigilon CEO Alexandre Fernandes agrees. He credits his company’s success to identifying the right product for the right market, having well-defined five-year plans and bringing in the right senior executives at the right time.

When he founded the company in 2004, Fernandes set out with a plan to first identify an untapped market, then started developing proprietary technology for it. The company had its first commercial sales in 2007, and went public in 2011.

“I’m a five-year planner,” Fernandes said. “Most people over-estimate what they think they can accomplish in a year.

But most people under-estimate what they can achieve in three years. Five years is that sweet spot.

“The objective (in the first five-year plan) was to get to $50 million in revenue and become profitable as quickly as possible, and we achieved that in 2010. We created a new five-year plan, which is to be at $500 million by 2016, and we’re well on our way to achieving that.”

Avigilon had $100 million in revenue in 2012, a year after going public. It now has a headcount of 367 and had $140 million in revenue in the first quarter of this year. continued on page 18

Don’t throw new hires into the deep end One of the biggest pain points for a rapidly growing company is human resources, and all too often companies that are growing quickly spend all their HR energy and capital on hiring, but not enough on training, integration and retention.

It’s a bit like tossing employees into the deep end of the pool without swimming lessons, and it can lead to high turnover rates, according to MNP consultant Natalia Venida.

Between 1998 and 2010, Oppenheimer’s workforce grew from about 140 people to 300.

“Having to onboard [and] train people – get them on board and on the same page really quickly – was important and it was a challenge,” Venida said. “We had to find ways to get them trained really quickly.”

Oppenheimer introduced an orientation program, a buddy system that paired new hires with experienced employees, and a company intranet to help new employees understand the business and their roles in it.

The company also established a corporate university that offered inhouse training courses on things like Natalia Venida of MNP Consulting points to the Oppenheimer Group when advising companies on how to plan for growth | Dominic Schaefer

produce business fundamentals and self-development. Part of its retention plan was to offer profit sharing and long-service recognition programs.

“I think a lot of the companies that are experiencing growth need to have a training strategy in place,” Venida said.

Business IN VAncouver business Excellence Series 5

Ask the experts

Family can provide help but are not always the wisest choice

By Glen Korstrom

A

dvisers play a huge role influencing decisions when growth is so fast that it is getting hard to cope.

Small-business owners in that fortunate situation have vital decisions to make at that time or they could risk disappointing customers and watching their success slip away.

One natural urge for many will be to bounce ideas off friends and family. Those in business networking groups such as Young Presidents Association (YPO), Forum for Women Entrepreneurs (FWE) or Entrepreneurs Organization will have a natural leg up with plenty of associates with keen business minds.

The other main option is to go to a consultant or a large consulting firm.

Bombay Browbar co-owner Ravy Mehroke was prepared to expand from one salon and six staff in 2010 to three salons and 35 staff today.

Before she launched the fast-growing eyebrow-sculpting salon, she made a point of going to an event where entrepreneur Judy Brooks would be speaking.

Mehroke struck up a conversation with Brooks, who founded, grew and sold blow-dry salon chain Blo. She then asked if she would be able to keep in touch with Brooks as an unofficial mentee.

Once business at Bombay Browbar clicked into high gear, Mehroke was able to hire Brooks as an adviser.

That helped her put systems in place to ensure that rapid growth did not impugn service to customers.

Lift Strategies principal and marketing consultant Jen DeTracey told Business in Vancouver that systems are vital with rapidly growing small businesses because it is so easy to descend into chaos.

“Things can fall through the cracks because they are so swamped,” she said. “You could have a high-growth

6 Business IN VAncouver business Excellence Series

Ravy Mehroke sought an unofficial mentor with experience in a similar business before she launched eyebrow sculpting salon Bombay Browbar | Richard Lam

business but if you upset customers or if they have a bad customer experience [the venture can quickly unwind].”

Mehroke co-founded her salon chain with her husband, Ranbir Mehroke, and her sister Amy Minhas. By 2011, when the salon was starting to show real signs of success she also brought on another family member, brother Nardip Minhas, as an investor.

Minhas brought more than capital. He has an accounting background and was equipped to help Mehroke scout options for best ways to raise future capital.

The strategy of seeking help from family has worked for Mehroke but it has its pitfalls for entrepreneurs who are not careful.

“You’ve got to be very careful with seeking advice from friends and family,” said Ian Smith, vice-president of mergers and acquisitions at EY’s Vancouver office.

“You’re really excited about your business and they will want to share in your excitement. They might tell you to go for a second or third mortgage and to be sure to keep

100% of your business instead of bringing in a partner who brings both money and experience to the table.”

Smith said paying an externa l adv iser to l isten to Things can fall through business stresses may also save a marriage because the the cracks because entrepreneur will not bring [small businesses] home the stresses to unload on a spouse. are so swamped One affordable way to get quality advice from business people, he advised is to join the Executive Committee (TEC). jen de tracey There, business leaders get marketing consultant, divided into groups that are lift strategies chaired by a particularly seasoned contemporary.

“Joining a T EC group is about $8,000 per year and that’s got to be one of the best investments you can make,” Smith said. •

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Business IN VAncouver business Excellence Series 7

Growth spurts Expanding businesses are running to catch up to increasing demand

By Emma Crawford

Native Shoes: Tight supply

You may have seen these shoes at the beach, in the mall or out on the town, on the feet of adults, children and even celebrities. They are sold through an online store and distributorships in 40 countries around the world.

But good luck finding a pair to buy – they’ve been sold out for months.

Vancouver’s Native Shoes footwear is made from foaminjected, molded polymer. They are colourful, washable, waterproof and odour-resistant, making comparisons to Crocs – or, the ‘C-word,’ as they are known at the company – inevitable.

After launching its product at a Las Vegas tradeshow in 2009, Native Shoes started booking orders right away.

Growth in demand has turned out to be much stronger than the company anticipated. Swift sales led to the summer

8 Business IN VAncouver business Excellence Series

2013 line being sold out before the season even took off, with attempts to view the collection online being met with a large banner saying that the online store has been taken offline until it restocks in the fall.

Now-CEO Scott Hawthorn said this is illustrative of one of the challenges faced by a small company that is growing quite quickly.

“You have to look at the available capital that you have and deploy it in a way that allows you to recycle that money back into the company,” he said.

“It’s very difficult earlier on to tell exactly what your growth is going to be.”

Cathy Burrell, a retail consultant at Cavern Retail Consulting, said this could have unanticipated consequences.

continued on page 10

Native Shoes CEO Scott Hawthorn: the company has been very fortunate to see such impressive demand | Dominic Schaefer

Catherine Osler, President, TEC Canada

As a champion of business thought leadership and best practices, TEC Canada is proud to be an ongoing sponsor of BIV’s Business Excellence Series. I am particularly pleased to participate in the conversation on Business Growth, it being the central focus of the company I lead.

Helping our members become better leaders to grow their business beyond what they thought possible is how I personally measure the success of what we do at TEC Canada.

In retail that’s like a mortal sin. You want to build a buzz for your next season

[] cathy burrell retail consultant, Cavern Retail Consulting

Vancouver footwear company getting a leg up with some paparazzi promotion Native Shoes, described by CEO Scott Hawthorn as a local company with global aspirations, is getting some big-name attention. Its product has been photographed on the feet of some wellknown celebs, including: •Pax and Maddox Jolie-Pitt, sons of Angelina

In my experience, achieving business growth is a balance of tangible and intangible factors.

Developing the acuity to recognize and assess the risk of new and often unexpected opportunities, striving for leadership in your own sector to identify the emergence of new trends and successfully navigate the transformational shifts, becoming ever more proficient at applying both wisdom and rigor to the implementation of cost controls – to these intangible leadership traits and skills are brought to bear the finance, technologies and human talents of the organization to accelerate and drive growth.

Composed of the tangible and intangible, business growth is a binary of the art and science of leadership – and ultimately the mark of a successful company. But for me and for the members of TEC, it does not stop there. Our members tell us they want to build companies where employees are proud to work, where innovation leads to next-generation products and services, and where the success of Canadian business lifts the prosperity of Canadian society – with business growth the engine to sustain it.

Warm regards,

Jolie and Brad Pitt; •South Park creator Trey Parker; and

Catherine Osler, President, TEC Canada

•Portia de Rossi, wife of Ellen DeGeneres.

Business IN VAncouver business Excellence Series 9

Gordon World, coowner of E-Cycle needs to find more service staff to be able to keep up with growing demand for fixing e-bikes | baila lazarus

growth spurts Continued from page 8

“That’s pretty shocking that the whole season is sold and they’re not even encouraging people to place advance orders,” she said, explaining that customers being met with the “Sold out” banner may just lose interest and walk away.

“In retail that’s like a mortal sin. You want to build a buzz for your next season.”

Hawthorn said the company is going through some changes, which will hopefully prevent It’s very difficult something similar from happening again. He and a group of other investors recently acquired earlier on to tell controlling interest, and Hawthorn has moved exactly what from acting to full-time CEO, replacing cofounder Damian Van Zyll De Jong, who left the your growth is company earlier this year. going to be “We’ve raised capital and we’ve put the new board structure and management team in place,” he said.

“We’re looking at putting a tighter operaScott Hawthorn tional structure in play that will allow us to CEO, Native Shoes plan for the future and best estimate what kind of sales we are going to be able to do in the following season so that we get to the point where we’re not selling out so early.”

Hawthorn said the company is shipping fall product now, and it will be available in local retailers by the end of summer.

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E-Cycle Electric Vehicles: Short-staffed

With zero emissions and an operating cost of between a tenth and a third of a cent per kilometre, electric vehicles offer a

10 Business IN VAncouver business Excellence Series

green and economical alternative to traditional wheeled transportation methods.

So says Vancouver’s E-Cycle Electric Vehicles, which has been selling and servicing electric bicycles, bike scooters, trikes and motorcycles in Vancouver for eight years.

Until about two years ago, the business consisted of owner and manager Gordon World and one additional employee.

Tight margins in the sector started forcing the company’s competitors to close their doors.

E-Cycle survived by moving to more of a service model and started servicing not only its products, but electric vehicles of all brands – something the competition wasn’t doing.

“We’ve had three or four competitors close in the last three to 12 months, and those orphaned customers have come to us,” said World. “Our service demand has gone up because those customers have nowhere else to go.”

The company has had to respond to this rapid growth by hiring more service staff, but this has proven to be a challenge as the skills required to service these vehicles are pretty specialized. There are no schools that teach these skills, said World, so E-Cycle has had to come up with some creative solutions to address its staffing requirements.

One source has been the Vancouver Electric Vehicle Association – a monthly meetup known as the Kilowatt Hour. “[The meetup] attracts enthusiasts, and some of these enthusiasts become proficient in repairing and modifying their own bikes,” said World.

Another way the company has addressed the staff shortage has been to look no further than its own front door.

“One of our first employees was actually a customer who had done some neat modifications on his bike, and we said, ‘Hey, that’s pretty cool, looks like you know what you are doing, how would you like to come work for us?’” World said.

“So sometimes customers can become employees too.”

Thanks to its resourceful recruiting, E-Cycle has grown from two employees to eight over the last two years. •

Confidential Group / One-to-one Mentorship / Business Thought Leadership / Global Membership /

tec-canada.com

“ The Executive Committee has challenged me to take my business to the next level. Working together with my TEC group has provided me with the tools to accomplish this and more.�

Gary Sedlick Owner, Okanagan Audio Lab Ltd.

Growing without risking it all Completing weekly strategic goals enables company to transition smoothly

By Richard Chu

H

oward Verrico has spent seven years outside the emergency room as CEO of Sirona Biochem.

The local ER physician, who has also been an active venture capitalist for the past 20 years, decided in 2006 to launch his own life sciences venture.

“It was a big project, and it turned out to be a bigger project than I ever envisioned,” said Verrico. “But as the company grows and achieves new milestones, it drives you to the next step. The excitement when you make those achievements is very rewarding.”

His venture capital experience and science background were valuable in launching a A lot of companies do junior company and in finding the French technology behind Sirona. But with the comfail in that transition pany entering a critical stage in its growth, Verrico realized the company needed people from great science to a with additional skills and experience. commercial product Last year, the company hired Vancouverbased GrowthPoint Group to provide strategic management, and by the fall, Verrico had transferred the reins of the company to howard verrico GrowthPoint’s Neil Belenkie. While some founder, sirona biochem entrepreneurs might balk at the idea of giving up control over their company, Verrico didn’t let ego threaten the future of the company.

“To be successful, you can’t just hang on and overstep your abilities and your skill set,” he said. “I’ve told investors and the other people I’m working with that this company will change; it won’t be the same company we founded and you can’t always predict how it’s going to change. A lot of companies do fail in that transition from great science to a commercial product.”

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12 Business IN VAncouver business Excellence Series

Neil Belenkie, CEO, GrowthPoint: “the number 1, overarching problem that we see in companies by far is that they can’t execute” | Dominic Schaefer

Belenkie, who is CEO and a founder of GrowthPoint, noted that many companies he’s dealt with have struggled with investing in the right people or finding needed financing.

In some cases he’s dealt with, companies haven’t created the right strategy to take the company to the next step.

In other cases, they haven’t completed a risk assessment needed to make a calculated, educated business decision.

“Too often, people will guess and will do something without having put in place a way to measure that something was good or not,” he said.

“But the number 1, overarching problem that we see in companies by far is that they can’t execute. They just can’t get it done. They never finish.”

At Sirona, Belenkie was brought in to execute a new strategic plan based on an assessment they had initially been asked to do last year. Now, every week, everyone in the company is accountable for a specific goal they need to achieve that week that brings the company successive steps closer to becoming a revenue-generating life sciences company.

A Time For Growth MNP is a proud sponsor of this year’s BIV Growing Your Business event. The word ‘growing’ is certainly a concept our firm understands. Over 65 years ago, we started out as a single office. Today, we are one of the largest national accounting, tax and consulting firms in Canada, with 80 locations and more than 3,000 team members from Vancouver Island to Montreal. In B.C., our 500-plus team proudly serves our clients from 16 locations.

Even 25 years ago, MNP was considered a successful firm, having just made the list of the top 30 firms in Canada. That was a milestone, but it turned out to be just a stepping stone to new possibilities. Since the beginning, MNP’s leaders had the foresight to see the world was going to change and that our clients and our firm either needed to evolve or be left behind.

Our growth was not just about adding new locations, but about expanding our services to ensure our clients received the specialty expertise and strategies they needed to be competitive and profitable in an ever-changing marketplace.

Throughout the years, we introduced new service lines such as succession, enterprise risk, forensics, valuation, cross-border taxation and more. Our approach was, and is, to continually ask ourselves: “What more can we do to help our clients’ succeed?” It’s a question that growing businesses must ask themselves every day.

“Forget the three-year plan or one-month plan,” he said. “What must we successfully achieve this week for the company to be successful? By having that level of focus on what must get done, we reduce the risk that we won’t achieve our goals.”

Investors seem to be rewarding his efforts. Sirona’s share price has recovered from a company low of $0.04 per share reached last October, rising to $0.145 as of midAugust 2013.

While Verrico may have given up the CEO position of his company, the positive milestones so far this year prove the choice was the right one to make.

“2013 is going to be a stellar year,” he said. “My goal is to make this company successful and I don’t have to be the CEO at that magical moment when the rest of the world deems this a success.” •

While we are national in scope, we remain local in focus. Working with local team members, you have access to our national network of professionals as well as strategic local insight to help you meet the challenges you face every day. It’s that balance of local and national perspective that allows us to serve our clients’ best interests and ensure you achieve your goals, wherever business takes you. It’s time for growth—let’s grow together.

Mackenzie Kyle Regional Managing Partner, Advisory Services MNP LLP 604.637.1596 Mackenzie.Kyle@mnp.ca

Ron Miller Regional Managing Partner MNP LLP 604.637.1524 Ron.Miller@mnp.ca

Business IN VAncouver business Excellence Series 13

Game plan for the future A detailed exit strategy can help owners understand the value of a business and include plans for growth

By Sean Kolenko

CK

Global Solutions founder Chris Kassardjian grew up the son of a very successful entrepreneur in West Africa.

Gabriel Kassardjian, Chris’ father, was the general manger of large paint company and ran a few small businesses on the side. He employed more than 100 people. And, in true entrepreneur fashion, he had plans to expand his ventures.

“Even in his 60s, he was a very dynamic person,” said Kassardjian. “He was still talking about growing the businesses and so forth. He wanted to expand into more projects.”

But then he got sick. Within five months of being diagnosed with pancreatic cancer, Chris’ father had died. The loss was a devastating blow to the family – but the business was affected as well.

At 32, Chris became president of the companies – a tall order for the young businessman. Kassardjian hadn’t been trained for the job, nor had others in the companies who were forced to change roles.

Then the banks started calling. It was time to pay, but loans to the businesses hadn’t been secured with life insurance. The financial pressure was significant, said Kassardjian.

“Not only did I have to face the death of my father, but at the same time nothing was really in place to protect me and the businesses if something critical was to happen to

14 Business IN VAncouver business Excellence Series

the major owner of those companies,” he said.

“It was nerve-wracking, the whole organization was being shaken from the head down to the bottom.”

Kassardjian admitted the situation he faced after his father died was an extreme one – not all businesses are rocked by the death of a family member.

But his experience got him thinking about the various kinds of risk a business can face and how important it is to develop a roadmap to address those risks and what-ifs.

That roadmap, Kassardjian said, is an exit strategy. All business owners should draft an exit strategy that outlines what to do in the event of death or retirement of a partner, what insurance policies are needed and when the best time to retire or sell the business is, he said.

Frank Kusmer, Kassardjian’s partner at CK Global Solutions, added that many business owners don’t have a realistic idea of the value of their businesses. Many owners let their emotions blind them to the realities of the market. But an exit strategy will give them the opportunity to sell when they can get the most for the business.

Chris Kassardjian (left) and Frank Kusmer, partners at CK Global Solutions: developing an exit strategy is an excellent way of addressing many of the ‘what ifs’ that could affect a business prior to a sale | richard lam

“You can’t always retire when you want. The market doesn’t care when you want to retire. Maybe the best time to sell is now. Maybe it’s in four years.

A detailed exit strategy will help you understand that,” said Kusmer.

“Everyone in business should have an exit strategy. Even if you plan to be in business for the next 15 or 20 years. In that case, you can include in your plan your plans to grow the business. In business, with so much at stake – time and passion and money, you owe it to yourself to do it.”

In addition to helping owners visualize various aspects of their business, a detailed exit strategy also includes displaying the financial history of a business in order to give prospective buyers a better look at the business they are considering purchasing.

Stephen Curran, managing director of transactional advisory firm Sableridge Capital Partners, said it’s critical to display as much information as possible about a company because savvy buyers

will do their due diligence. Any surprises during the selling process should be avoided.

According to Curran, those interested in selling their business should highlight: a track record of consistent growth, between three and five years of financial history, any long-term contracts with clients, the business’ legal makeup and the management structure detailing the expertise of each of the company’s executives.

Prospective buyers will want to know that there are managers in place that can take over other roles in the event of a sale, Curran added.

“That’s the approach. Someone who has been running their business for years and years probably doesn’t know the process and to show this information. Sellers sometimes need help,” said Curran.

“Present the information, make it clear. You want buyers, at the end of their due diligence, to say ‘yes, we are getting what we thought we were getting.’” •

Not only did I have to face the death of my father, but at the same time nothing was really in place to protect me and the businesses if something critical was to happen to the major owner of those companies

[] Chris Kassardjian Founder, CK Global Solutions

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Transition points Hiring a solid management team is key to having a succession plan run smoothly

By Glen Korstrom

O

wner of PDG Mobility Technologies Louis Belanger had little competition when he spent “millions” of dollars to

buy his 45-employee company in 2011.

PDG Mobility Technologies owner Louis Belanger is in constant recruitment mode and is putting corporate systems in writing as a way to plan for succession | richard lam

The previous owner had health problems that forced him to sell the company but he had not cultivated a leadership team outside of Belanger, who was the company’s general manager.

Many processes were not written down and it was not clear to other outside buyers exactly what the value of the company was. So, Belanger believes he got a good deal on the purchase.

Since the transaction, he has taken some of these lessons to heart and gone into constant recruitment mode.

“You want to grow the company and have enough critical mass that it supports a solid team of professionals,” he said.

“You need a certain amount of cash flow to be able to do that so that’s what I’m working on.”

As a business expands from being a small to medium-sized venture, succession planning increases in importance.

Most business owners, however, are more focused on making their venture’s growth trajectory as steep as possible instead of planning ahead for how to extract the highest possible cash-out if they are suddenly forced to exit the business.

A TD Waterhouse poll found that 76% of Canadian smallbusiness owners lack a succession plan.

This lack of foresight is increasingly important given a Canadian Federation of Independent Business poll that revealed that nearly half of all business owners plan to transition out of their enterprise at some point in the next five years.

B.C. has the highest per-capita number of small and medium enterprises in Canada with 80 for each 1,000 residents, said Vancouver-based PWC partner Jim Crooks.

Key points owners should consider when preparing to exit their businesses •Strengthen your management team to ensure you have sufficient depth and expertise; •Evaluate the business goodwill versus current owner “personal” goodwill (business goodwill can be transferred while personal goodwill cannot); •Ensure that your financial performance is growing or at least remaining strong, not declining; •Prepare thorough and detailed financial reports to provide comfort to potential buyers; •Develop realistic but strong financial forecasts; •Ensure that key contracts with customers and suppliers are in writing; •Try to have a diversity of clients and suppliers so you are not dependent on just a few; •Address any outstanding legal or environmental issues before starting a transaction; •Understand your company’s working capital history and trends; •Understand your company’s specific value drivers and the market values in advance of a transaction; •Ensure you have done tax planning.

Source: PWC

continued on page 18

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Business IN VAncouver business Excellence Series 17

Do you know Continued from page 4

Some companies have been known to hit a psychological wall when they hit the $100 million mark, the point where they realize that the tools they used to build a $10 million company don’t work in a $100 million company.

“A lot of entrepreneurs, they work hard, they beaver away and then they got to $100 million and they’re not thinking beyond,” Fernandes said. “There is no actual real wall – it’s a [selfcreated] wall. It’s important to set measurable goals, otherwise you never know if you’re achieving it or not.”

For Avigilon, getting in front of the growth included hiring executives with experience in billion-dollar public companies in anticipation of getting to the $500 million mark.

“There are a lot of things that bigger companies have as challenges that little companies don’t,” Fernandes said. “And the danger is, if the entrepreneur or the CEO hasn’t had big company experience and doesn’t surround himself with seasoned executives, you’re going to walk right into all these traps, and some of them are unrecoverable. By the time you realize you’re hitting the rocks, it’s too late.

“Within the year of the IPO, I recreated the executive management team. I rebuilt the executive management team to be a billion-dollar business. I made some changes and brought in some people that have had a string of success going from $500 million to $1 billion and beyond.” •

transition points Continued from page 16

The options facing a business owner who wants to exit a venture include: •selling shares to a third party; •selling or giving the business to a family member; •transferring shares to a partner or a group of employees; You want to grow the •taking the business public; or •winding up the business. company and have Winding up the business is usually the last enough critical mass resort as it is the least profitable. Selling or giving the business to a family member is common that it supports a solid but advice on how to structure the deal and the team of professionals tax ramifications varies widely and depends on individual situations, Crooks said.

The exit-price in each of the three other options is facilitated by a similar set of actions. louis belanger The single most important thing that a owner, pdg mobility technologies business owner can do to exact the highest sale price is to make it clear that the business is solid without the current CEO and owner.

That means hiring a solid management team that is able to run the business in the owner’s absence. It also means making it clear that relationships with customers and suppliers are not built solely by a personal rapport with the owner.

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18 Business IN VAncouver business Excellence Series

Crooks explained that personal goodwill, such as strong relationships with suppliers and customers is not valuable in a negotiation for the sale of a business. Better is to spread out the communication with customers and suppliers so that others in the business also have a rapport. That will help that goodwill be seen as something that belongs to the business as a whole.

“Business goodwill is the brand and patents,” Crooks said. “Personal goodwill is relationships that are not transferable.”

The best way to determine what goodwill is personal and what is business-related is if the owner has demonstrated that he or she can go on a months-long vacation and the business runs fine during that absence, he added.

Making sure that all customer contracts and company processes and systems are written down is another important task to ensure the highest possible sale price for a business, he added.

Having detailed bookkeeping is an extension of this. The easier it is for a potential buyer to look at the books and understand the financial performance of a business, the more likely it is that the potential buyer will bid for the venture.

Extra clarity to ensure that there is a visible growth trend in revenue, profit, earnings before interest, taxes, depreciation and amortization (EBITDA) and other metrics also helps the sale price, Crooks added.

Without ta ki ng these steps, sa les options can be limited. •

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