Well before 1997, Asian investors wishing to immigrate to Canada chose British Columbia and the Lower Mainland to buy homes and businesses. The motivation for these well-heeled investors are complex. The business opportunities in Asia are off the scale, so starting or moving a business to Canada has not until recently been on the radar screen. Having the opportunity to get a Canadian passport and the ability therefore to move their assets to a safe location, is the most common motivation. The provincial and federal governments have made this opportunity real by creating programs to codify the process.
But investors have exhausted the stock of viable businesses for sale in the Lower Mainland and they have now begun to focus some of their attention on BC’s Interior. This is good news for businesses in great shape, profitable, needing a cash injection to grow and where the owner is motivated to leave with a wad of cash in his jeans.
This is bad news for companies still reeling after being kicked and punched by the recession. The balance sheet shows too much debt and, profits and revenues are down from historical levels. Moreover, the owner needs enough cash from the sale of the business to retire; but the business may not be worth so much.
As in a prior article – Baby Boomers, Business & Freedom 85, we identified many businesses from the border to Kamloops where the company cannot be sold for enough money for the owner to retire. The debt loads are high and the owner must keep grinding it out every day just to service the debt. There is no hope of ever leaving the business and retiring debt, never mind leaving with a barrelful of cash.
But the Asian exit is an opportunity not to be missed. No they won’t and can’t buy unprofitable businesses. The government won’t let them. They must buy businesses over five years old. And they won’t pay ridiculously high prices just for the privilege of living in British Columbia. Any good lawyer and accountant will strongly advise against such foolish behaviour. The program managers will advise against it. Moreover, the investor wishing to come here is a businessman, not a patsy.
So can an indebted business be sold? Yes - with some hard work, a few tricks from a professional and a rework of the financials, the balance sheet can be made to look reasonable and sales start growing again. And it is surprisingly easy for a company to show a profit when it needs to. We have several projects like this under way at the moment. With a bit of help from people experienced in making the financials work, the business can be sold. None of this is a guarantee that the overseas investor will buy nor that the government will give its approval. But given the absolute shortage of good businesses to buy, standing tall in this crowd of midgets is not tough.
This column focuses on business problems and how to solve them. Andrew Gregson, BA, MA , M.Sc.Econ is an economist, author and a Senior Partner in iNTENT Financial Inc, a Kelowna based finance and consulting company. The four partners specialize in finance, pre-determined profitability, sales and marketing. If you need further information, please contact us through the website at www.intentfinancial.com.