Planning to Sell Your Business
SELLING YOUR BUSINESS & PLANNING AN EXIT STRATEGY!
There are so many, business owning, baby boomers about to turn 60 and who are now starting to think about retirement, that I predict the “exit strategy” business is going to boom!
These are business owners who have been building up their businesses for decades, perhaps with the idea of passing them on to their families or selling as a retirement nest egg.
But... When the time comes it’s not that simple. There are not heaps of people out there with millions of dollars waiting for the opportunity to give them to you so that they can have the pleasure of buying the business that you are trying to escape from.
In fact, selling your business so that you can retire and live on the continent or put your feet up next to the fire, requires a strategy and a plan of action.
Commonly called an “exit strategy”, I prefer to call it a marketing strategy with your own exit at maximum benefits built into an overall plan that provides for the future of the business, its customers and staff, while making it attractive to potential purchasers.
Business sales don’t just happen on retirement and can be the result of illnesses, accidents and even divorces, so it is sensible to start looking at your business right now as a “marketable product” to see how well it stacks up.
Start with the check list below.
1. Does a potential buyer have to have a trade or special skills or qualifications to run your business? YES [ ]; NO [ ]
2. Does your business run without you there? YES [ ]; NO [ ]
3. Do you operate 5 days per week? YES [ ]; NO [ ]
4. Is your business in a growth industry / market, or a static / declining one?
YES [ ]; NO [ ]
5. Is your business more profitable than your competitors?
YES [ ]; NO [ ]
6. Is your business worth more than similar businesses in your industry?
YES [ ]; NO (or don’t know) [ ]
7. Are there competitors or potential industry entrants who could benefit by buying your business?
YES [ ]; NO (or don’t know) [ ]
8. Would customers still do business with your organisation if you didn’t own it?
YES [ ]; NO [ ]
9. Do you have an up to date and detailed customer database showing customer information and purchase / sales history? YES [ ]; NO [ ]
10. Do you have a promotional program to keep regular contact with your current / regular customers and a sales / promotional program to recruit more customers?
YES [ ]; NO [ ]
11. Do your annual accounts reflect an accurate picture of your business from a prospective buyer’s perspective?
YES [ ]; NO [ ]
12. If your business owns its premises or other property has it been recently valued? YES [ ]; NO [ ]
13. Have loose ends like slow moving stock lines been eliminated, staff numbers reduced etc? YES [ ]; NO [ ]
Mostly “NO” or “don’t know” answers show that your business could be improved an indicate areas you may need to work on. You never know when you might have to sell your business!
If you have mainly “YES” answers your business is in pretty good shape for sale
STAGES OF EXIT STRATEGY DESIGN
It seems to me that selling your business is a lot like selling a house you have been living in for many years.
First comes the decision to sell, which could be to downsize or upsize or whatever. The essential objective or reason for change! Then comes research to find out how much the house is actually worth and how much it could be worth if it is tidied up, painted etc.
When we decided to sell our house a few years ago, I started looking at it from the buyer’s perspective, and seeing all the things that I could do to make it more valuable. The things you tend to put off when you actually live there. A quick calculation showed that with a little time, effort and modest expenditure I could get a lot more than simply listing it with the local real estate agent. Is that motivating! In 3 weeks I had done more to the house and garden than I had done for the previous 3 years. That was reflected in the price range the agent suggested and resulted in good offers from several potential buyers with different plans for the property. Result.... We got the price we wanted!
This is the big one! Do you absolutely, definitely want to sell your business and walk away? And, have you decided what you will do when you have sold it. If you are planning on heading to a villa in
STEP TWO – HOW MUCH IS YOUR BUSINESS REALLY WORTH?
Finding out how much your business is worth is not as easy as finding out what your house is worth as it is very difficult to compare two businesses even if they are in the same industry.
There are various methods that accountants and valuers use to arrive at a business valuation but there is no simple guide or calculation that applies in all cases. They all in fact say that your business is only worth what someone else is prepared to pay for it!
Your business could be worth a lot more to some potential buyers than others, so it’s worth spending some time and efforts in identifying them and building your sales approach around the ways they could benefit. For instance one of your current competitors might be prepared to pay over the odds to get your share of the market and to keep out others.
However, for my money business value comes down to four key points.
1. How much profit your business makes now and expects to keep on making in the future. That is what a business buyer really wants.
2. How much your business assets, including brand / goodwill, plant and equipment, real estate / buildings etc are worth or would cost to replace.
3. Whether your business has separate saleable assets like real estate earning rental income and capital growth, or parts of the business which might be sold as separate stand alone businesses.
4. The fourth and most important is how many potential buyers there are in the market who would like to buy your business and how much the business is worth to them.
USE A PROFESSIONAL BUSINESS VALUER
The sale of your business is simply too important to tackle lightly or by guesswork. I would strongly suggest using Independent Business Valuers and to pay for an accurate and researched valuation. A good Valuer will be able to research past sales information for the same or similar industries and will combine the various valuation methods to arrive at a considered price. For the cost of a few thousand dollars this is a real investment and provides a good starting point for business sale. True “independence” from buyers or business brokers is essential.
They will also help you to work out what the intangible assets of your business might be worth, like goodwill, brand names, reputation, trademarks and intellectual property.
STEP THREE – PREPARING THE BUSINESS FOR SALE
If you want to get the best price for your business you have to present it well and demonstrate to prospective buyers that it is profitable, has future prospects and is worth the price you want them to pay. In most cases you also have to convince the buyer’s Bank that the investment is a good one and will provide income and retain capital value over the long term.
Preparing your business for sale takes extra time and effort on top of the job of running the business. You should allocate a budget for the costs and where possible employ outside experts to do as much as possible.
I suggest you go back to the check list at the start of this article and identify those “NO’s” that you could change into YES’s then start with them.
Contact personal financial advisors and your business accountants to help you plan your exit strategy. The business may need restructuring and tax issues could have a major effect on what you finally take with you in proceeds from the sale.
I suggest you get an independent valuation of the business as it is now warts and all. It’s worth the investment and your business Valuer will be able to other suggest areas that should be looked at and make an estimate of the consequences in terms of the increased business value they would attach to each. In other words what the business could be worth if you fixed up the problem areas.
STEP FOUR – THE BUSINESS SALES STRATEGY
There are many ways you could approach the sales of your business, from the conventional advertising through a business broker, to personal approaches to prospective buyers or floating the business by offering shares.
I believe it is essential for larger businesses to produce a separate Marketing Plan for the business sale that identifies prospects and creates a strategy for the sale.
This plan will need to identify your target market of potential buyers / ways to exit the business.
· Competitors in your industry wanting to expand easily
· Organisations in related industries who might want to enter your market segment.
· Supplier organisations who may want to consider vertical expansion.
· Customer organisations who may wish to control supply.
· Your own executives and employees. Management buy-out!
· The possible incorporation of the business and sale of a major proportion of shares to investors and or customers and suppliers. You retire on the proceeds of the sale of the shares and or retain them for income generation.
As I said at the start of this article, selling your business is not simple, particularly if it is large and successful. But the difference in the proceeds from the sale of a well prepared business, like a well prepared property can be considerable and worth the extra effort involved.