You want to the get the best price when you sell your business?
Then plan, plan and plan.
How? By thinking ahead.
You have a business. If it is a true business and not just a salary substitute, you should be looking to how and when it is to be sold. When and how you will cash out.
As baby boomers look at retiring, Australia will be swamped by SME sell offs. A challenge that this raises is, with so many businesses flooding the market, it may be difficult to sell at the price and time you want.
To get ahead of the game, you must take steps now to make sure you maximize your reward for your years of hard work and sacrifice when you sell.
In a highly competitive market, those who do best are those who have planned. You need to plan now to make your business attractive to buyers; knowing its worth; understanding the tax implications; and becoming familiar with the sale process.
Plan, Plan, Plan
Owners who take a strategic approach to selling are better placed than owners who don’t. SMEs are affected by systemic factors outside their control, such as economic fluctuations and social trends. A carefully thought-out plan protects the value of your business against the vagaries of these systemic factors and many internal ones.
The long term financial consequences of a poor sale price can be significant for you and your family. A 2013 St George Bank study found that one in five SME owners expects to sell their business to fund full or partial retirement. Yet 54 per cent of owners are not doing any succession planning, despite a sale being their most likely exit strategy.
Selling your business is a major financial decision. For many it can be the most significant you will ever make. Etienne Lawyers experience reveals that most owners put more effort into maximising the value of their home than they do into preparing their business for sale.
Getting your business ready will take up to five years of planning. That is a small investment of time to ensure you live your final 20 to 30 years in comfort.
Sale Preparation Checklist
- Polish your business to its highest lustre Consider how to make your business more attractive. Revitalise a stagnant customer base? Upgrade financial systems? Put together a plan to identify and implement business improvements. The sale price will be driven by the strength of your business so, just as you would spruce up your house for auction, ensure your business is in top shape. Otherwise prospective buyers will use any negatives to negotiate the sale price down. By contrast, a business in peak condition will stand out and attract a good price.
- Plan your cash out strategy Think about your potential target market as to where your buyer will come from for your business. A larger industry player, a smaller competitor, overseas investors, family members, current employees, floating on the ASX or private equity buyers are just a few possibilities. Which ways are best to stimulate interest from potential buyers and obtain multiple offers? Once you have a cash out strategy, you can decide on the most appropriate marketing strategy to attract the right types of buyers.
- Be realistic of your worth To negotiate confidently, you or your advisor must clearly articulate what your business is worth to each prospective buyer. Not just the standalone value but the strategic value to the buyer. Strong profits, a future growth path and no further capital investment are plus points for most buyers. You need to also assess your expenses.
- Are there expenses that exist for life style choices that are reducing the profitability of the business which will not allow you to put the correct worth on your business?
- Do you need to remove such cost before seeking buyers?
- Potential synergies in areas such as distribution channels and product lines are other common benefits. Think like a buyer – what would you look for?
- How much working capital is required?
- Understand tax implications You need to give this careful consideration. By careful and legal tax minimisation planning you can receive more money in your pocket. There is little value in looking to do this once you have a buyer and the buyer has set their mind on what they buying. Tax planning may mean putting in place new structures. This may have an impact on how the business finances will look. As soon as you think about selling tax planning needs to be implemented.
- Are you ready to sell For many SME owners, their business represents far more than a collection of assets and an income stream. The stress of selling can be worse if the sale is being forced by poor health, financial woes or other external circumstances.
Whatever your situation, attempt to control the sale process do not let it hijack you by your loss of emotional attachment to the business. Getting hijacked by emotion, often leads to poor decision making.
You have spent years putting the business together. It is yours. Indeed, it can and often is seen and felt as being an extension of you. People often forget to take into account that selling their business is an emotional process. The more you understand it, and the more you plan, the more in control you will feel. You need to consider what, if any, role you will or should have during the sale and afterwards.
- Will you remain with the business in any capacity?
- Could you or should you stay on for a transition period?
- What will happen to any family members you employ?
There is a great deal of money at stake and the sale represents the culmination of years of hard work. To add to the stress, selling is a complex process with many ups and downs.
Understanding the process and planning ahead puts you in control and makes the journey easier. Yet many sellers avoid or delay seeking advice and making plans. I hear many reasons, from “I had no spare time” to “I don’t know where to start“.
There are always reasons for not being prepared. But if you want to reduce your angst when the pressure is on, consider these tips.
Be a detective investigate and ask questions
Having answers to key questions will provide clarity and help with upfront decisions. The questions you need answers to include:
- How do I find the right buyer?
- Should we conduct an auction with multiple parties or deal exclusively with a single party?
- How will confidential information be protected?
- Should I own the intellectual property outside the business being sold?
- Might franchising be a better way of exciting than selling what I currently have?
Once you have answers to these and many other questions, you can agree on the best sale process, rules and timetable.
Don’t be afraid to ask questions during the sale too. Are you worried about buyers talking to customers or staff? Ask. Does the preferred buyer have the money? Ask. It doesn’t matter how many questions there are – it’s important that all your questions are answered.
Get support From Etienne Lawyers
To answer your queries, you need an advisor with insight, patience and experience. To manage and engage with buyers, you need a confident, persuasive advisor who has done this many times before.
The ideal advisor will: understand your business and your industry; have a proven sale process and be able to plan the steps with you; be easily accessible; respond to queries promptly; and keep lines of communications open between everyone involved. They will be so on the ball, they will answer important questions before you’ve even thought of them. Etienne Lawyers is that advisor.
Be guided by your advisors, because they will be your best source of practical, objective and unemotional advice. Keep in mind we provide commercial advice not just legal assistance.
Remember: Are You Ready To Sell?
Do not underestimate how emotionally draining and time consuming selling is. Even with proper management, it’s a big distraction from running your business.
Above all, keep your eye on the end game: achieving a good sale price on your terms.