Is your business a saleable asset?
The much publicised baby boomer phenomenon means the number of businesses for sale (not necessarily advertised though) will increase dramatically in the coming years.
The increased supply will lower business values, increase sale timelines and generally make it harder to sell businesses. If it isn’t a buyers market already it certainly will be in years to come.
What this means for current owners is that better preparation and planning for the sale of their business is essential.
And to some extent “early birds will get a worm” while others will just miss out.
Where you are dependent on the expected business sale proceeds to fund your retirement or to pay down debt the effort that goes into preparing your business and planning for a sale really needs to be considered an investment.
Without the investment the chances of not securing a sale skyrocket and the likelihood that you don’t achieve your target sale price multiply.
Preparing your business and planning for a sale does involve many items with the following being at the top of the list;
- Normalisation / adjustment of your business financials so that a potential buyer can clearly and easily see what return they can expect from the business if they were to buy it. This process frames the potential return on investment and therefore the potential value. When completed a summary of the financials should be part of a 1-2 page summary.
- Highlighting the plan to extract you as owner of the business in such a way that the business doesn’t fall apart when you leave.
- Developing a robust vision of how the business can be transferred and sustainably grown under the ownership of the prospective buyer.
- Ensuring that the key business assets (staff, IP etc.) can be easily transferred.
- Developing a communication plan so that your staff, suppliers, professional advisors and your ‘nearest & dearest’ are all made aware of your plans at the appropriate time and in such a way that they only receive the right level of information at the right time.
- Identifying and appointing advisors and setting in place a process to deliver a business sale on your terms and in your timeframe.
- Ensuring you as the owner have a clear, post-business plan.
In very broad terms the longer you allow for planning the sale and for the sale process the better off you will be. You can still achieve some worthwhile results with as little as a few months planning but ideally you would allow up to 2 – 3 years.
With 2 – 3 years you can prepare well but also allow time for some meaningful business improvement strategies to be realised. Within that timeframe the sale process can be run without any hint of urgency or desperation.
Once your business is prepared a typical sale timeline can be anywhere between 6 months and 18 months.
A further part of good preparation, and something a strong business sale advisor will coach you on, are the key questions you can anticipate from prospective buyers.
Your answers to these questions will have a major impact on the result you achieve. In fact all the good preparation can be undone quickly if a jumbled answer unsettles an interested buyer.
You should be well rehearsed with answers to the following type of questions;
1. Why are you selling the business?
2. If you were to stay in the business for another 3 years how would you double sales?
3. What are you planning to do after you sell the business?
4. Are you prepared to stay for an extended handover period to ensure we can successfully take over and/or integrate this business with our other business?
5. How important are you to the business and can/will the business survive when you are gone?
Clear, considered answers to these questions will reassure the buyer that the business is in good shape, you have a genuine reason to sell and a plan for life post business.
Gone are the days when you could simply decide it’s your time to retire, put your business on the market and wait for a buyer to call. The market dynamics are very much in favour of buyers.
Most business owners will only ever sell a business once. Properly preparing you and your business for sale is now a mandatory investment – in terms of time and money – that you need to make in order to secure a sale on your terms and in your timeframe.
The implications for getting it wrong are very costly.
Good planning should and will stretch you but if you start early enough it is very manageable. The longer you leave the harder it gets to start. Not only would that mean a lower financial return, it will also drain you emotionally (knowing you should have started earlier) and distract you from getting to where you want to be post business.
Cheers,
Michael
Michael
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