Do you want to get top dollar when you cash in your business chips? Then think ahead.
Are you older than 45? Will you be selling your business over the next ten years? If so, you are not alone. The majority of SME owners are from this age group and they are all thinking like you.
As many experts have pointed out, Australia will be swamped by SME sell offs as baby boomers dispose of their businesses to spend more time with the grandkids, travel the world – even take a part time job. The theory goes that, with so many businesses flooding the market, it will be hard to sell at the price and time you want.
Fortunately, you can take steps now to make sure you are properly rewarded for your years of hard work and sacrifice when the 'For Sale' board finally goes up.
In a highly competitive marketplace, those who prosper at sale time are those who are prepared. This means investing time now in making your business attractive to buyers; knowing your worth; understanding the tax implications; and becoming familiar with the sale process.
This six-part series is designed to help. First of all: is your business ready to sell?
Plan, plan, plan
An owner who takes a strategic approach to selling is better placed than one who doesn't. All SMEs are affected by 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 external forces and many internal ones, particularly if you need to sell quickly.
The long term financial consequences of a poor sale price could be significant for you and your family. A St George Bank study last year found that one in five SME owners expects to sell their business to fund full or partial retirement. A further 54 per cent are doing no succession planning, with a sale their most likely exit strategy.
Selling your business is one of the biggest financial decisions you will ever make. Yet in my experience, most people 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.
- Groom your business: 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 your prospective buyer 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 marketing strategy: Think about potential buyer groups for your business. A larger industry player, a smaller competitor, overseas investors, family members and private equity buyers are just a few possibilities. What is the best way to create maximum interest and obtain multiple offers? A trade sale, share market float, management buyout and family transition are all possible. Once you have a marketing strategy, you can decide how to attract the right buyer.
- Know 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. 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: Ask your advisor to explain the taxation implications of selling and work out a tax minimisation plan. This may mean putting in place new structures.
- Prepare yourself: Selling your business is an emotional process. The more you understand it, and the more you plan, the more in control you will feel. Think about your role during the sale and afterwards. Will you remain with the business in any capacity? Could you stay on for a transition period? What will happen to any family members you employ?
Over the next few weeks I will cover all these topics and more. Next time: managing the ups and downs of the sales process.
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