Executive Summary
Most value is lost before the LOI is signed—through weak preparation, owner dependency, messy numbers, and poorly negotiated terms. Solve these ahead of marketing and you’ll shorten time-to-close, reduce discounts, and improve the odds of a clean, cash-heavy deal. For market context, see our overview of the Canadian SME market under $20M (https://www.cannarmergers.ca/blog/canadian-sme-market-overview-under-20m).
The five recurring pain points (and the fix)
| Pain point | Why buyers discount | What good looks like (solution) | Proof to show in diligence |
|---|---|---|---|
| Owner-dependency | Continuity risk if the owner exits | Name/empower a 2IC; document SOPs; define 90-day handover | Org chart, RACI, SOP index, 2IC profile & KPIs |
| Messy numbers & QoE gaps | Hidden liabilities; weak trust | Monthly P&L/BS/CF; clean AR/AP; tax compliance; QoE-ready | 24–36 months of monthlies, bank recs, TB tie-outs |
| Customer concentration | Revenue cliff if a key account leaves | Multithread relationships; renewals; pipeline ≥3× bookings | Top-20 customer file: revenue, contacts, renewal dates |
| Working-capital shocks | Price chips at closing (WC peg true-up) | Baseline WC peg; tighten AR; right-size inventory | 12-month NWC trend; AR aging; inventory policy & turns |
| Deal terms vs. price | Headline price ≠ net proceeds | Prefer cash at close; short, controllable earn-out; fair VTB | Term sheet with cash %, earn-out metric/period, VTB rate |
90-day action plan
- Close monthly with a one-page KPI commentary (GM%, AR days, inventory turns, cash runway).
- Shift decisions to your 2IC (3–5 recurring calls) and make them visible to staff/customers.
- De-risk customers: second relationship owner + renewal calendar for top 20.
- Lock the WC peg: simple 12-month average; address outliers now.
- Pre-draft structure: maximise cash at close; use a short earn-out tied to metrics you control; set VTB guardrails—see our guide on deal structure and contingencies (https://cannarmergers.ca/how-data-driven-decisions-boost-sale-price-7/).
Sector notes (sub-$20M revenue)
- Manufacturing: First-pass yield, on-time delivery, changeover time, and maintenance backlog.
- HVAC/Trades: Technician utilisation, recurring maintenance agreements, cancellation rate.
- Food/CPG: QA/recall readiness, shelf velocity, supplier SLAs, fill rate.
Want a 30-minute “pain-point audit” before you list? Contact Cannar M&A.
