Get your private business ready for sale even if you aren’t selling.
10 tips to send you on your way to adding tremendous value to your business:
Most business owners know successful a outcome requires careful planning, preparation and execution.
That’s why regardless whether a sale may or may not be in the near future, one thing is certain, and that there is always an end point. Whether or not you choose to sell, give the business away, throw the keys away or set everything on fire, there is always an exit point.
But how you exit is entirely up to you…
If you venture down the path of selling, it is not as simple as putting up a for-sale sign and then a flood of bids will come flowing in. In practice, there are a lot of things you will need to consider and prepare for the best outcome. This often is not just about the final figure that follows the number of dollars on the cheque you’ll receive.
Planning your eventual exit of your business requires strategic decisions made now, to move you in the desired direction so you can end up in the planned future. Here are 10 things you should consider when planning your exit:
1. The very best time to start planning for your business exit is, NOW.
Long gone are the days of aiming for low income to manage your tax position. Those who have applied for finance will understand how damaging it can be not having the right serviceability level.
Your business needs to be making money, so start thinking about ways to maximise business profitability long before you need to sell. Having a profitable business is one of the best forms of insurance any business owner can have.
If at all possible, allow yourself and the business a minimum of at least 36 months before you’re ready to exit or sell. Work closely with your accountant, business advisor and broker early.
This will allow you and your trusted team of experts the best opportunity to enhance the value and attractiveness of the investment opportunity you are selling, compared to implementing changes while in the middle of a sale process.
Most people can’t manage to make their business profitable, without the added pressure of the selling cycle. Having higher earnings at the time of sale by focusing on operational efficiencies, cost reductions and other value enhancers to your potential buyer makes selling your business a smaller mountain to climb.
2. Cut the CRAP.
Why wait til it’s the end to have a great business? Start the clean up now. Look at cleaning up your balance sheet, talk to your accountant, virtual CFO, business adviser as you look to improve on efficiencies.
Are there opportunities to remove non-business related assets (does your business really need that 40 footer boat you hardly ever use these days). What about monetising redundant and underutilised assets? How about controlling spending and expenses activities. Look for opportunities to be more efficient.
3. Having a SOLID Business.
Having strong internal controls and processes (the core) is a great start to implementing business conditioning and strengthen transformation. Taking a step back to really understand your business operations, working closely with your CFO/FC or Head of Finance by doing so you are able to dig deeper and view profitability from more of an objective standpoint.
Having reliable, accurate and timely reporting of financial statements is an attractive feature to any potential buyer. A solid cash flow, lower capital expenditure requirements and a strong leadership/management team will increase the attractiveness of your business.
C-C-C stands for Cut Customer Concentration. To interested buyers, an ideal business has a broad base of diversified customers with minimal customer concentration. Diversification is more than just a concept of managing your share portfolio. It’s risky business to have or rely on a small number of customer interest. Although undesirable some customer concentration may be unavoidable, this is a practical reality of most businesses.
Where possible ensure to reduce and manage this risk by having signed contracts and other measures that will provide buyers with confidence with customer continuity especially after the transfer of ownership as every buyer intends to have some form of return on investment.
5. Future FORECAST!
In addition to the C-C-C buyers are looking to the future cash flow the investment opportunity holds. Offer a realistic, supportable and dependable forecast to educate buyers on the future cash flow you are offering to them. A good quality business with credible management is more likely to represent a forecast that is reasonable, believable and achievable (subject to a few degrees of professional judgement).
6. What’s the big ELEPHANT in the room?
When it’s time to sell the business, your ability to separate any personal issues from business issues is critical. Talk and address the elephant in the room (hidden issues), where possible clean up excluded assets and proactively normalise your books so that the true value of the business is reflected.
For example, what’s the appropriate market value for an owner’s salary? By addressing the hidden issues upfront, this provides the potential buyer increased confidence, certainly in their decision-making process and eliminate unnecessary time-wasting negotiations.
7. You’re FIRED!
That’s right, the objective is to make yourself redundant. Transferring the value of your personal brand into the business, remember what you are selling here, you’re selling the business, not yourself. Potential buyers are looking for a strong supporting leadership and management team.
By removing yourself from the picture, you are painting one that indicates that the business will continue to be a success even long after you’re gone.
You might not be ready for this now, so an easy way to ease into this concept of letting go, ask yourself this question frequently and consistently:
If I go on holiday for a month, can the business run on its own?
Will you return to find yourself not just putting fires out but having to call the fire brigade and the ambos to take you away from a heart attack seeing your business in ashes!
This factor alone can be a deal breaker, so it’s best to ‘make yourself redundant’ as a buyer is generally looking to buy your business not you. Demonstrating that your business can survive even thrive without you for an eventual exit is key.
A good way to find the constraints in your business is to take some time off (men if it’s only one day initially), and see what breaks. Then implement systems to repair that part of your business. As you continue to implement systems, you can start spending longer periods away from your business until it can successfully run without you…
8. Sell the SIZZLE!
As some say, sell the sizzle, not the steak. Some buyers understand good business but never assume this is the case with all potential buyers. People can come from all sorts of backgrounds, so you should take the time to show them the dream or vision of what your business could become.
Articulate your vision, explain the growth story and help them see the business’s potential that is ready and waiting for the to capitalise on. Showcase the systems you have implemented and the high-performance culture you have developed, and help your buyer understand the potential your business really has.
9. Working CAPITAL
Understand it, manage it and reduce it. An often overlooked source of value in many small businesses is working capital, because the concept is somewhat difficult to wrap your head around. Besides cash flow, working capital is another attribute the keeps the business humming.
Buyers are looking for normal level with proper management of cash in the business. The main reason to nip this in the bud is that it can free up cash trapped in the business. Like most things in business, understanding and managing working capital requires time and effort. Having a lower total level of expected working capital will increase the attractiveness of your business.
10. Bring in HELP
Consult and seek professional expert advice. Engage seasoned advisors who understand you, your business and have your best interest at heart. They should provide industry insights, saving you money and adding value to your overall objective.
We are not referring to just one individual, but rather ensure that you have the right team of professionals helping you, each bringing added and complementary value to the deal. For example – accounting, tax, legal, risk, human resources to broker services.
The business sale cycle is dynamic and complex, so having a team behind you allows you to pull in the right person to handle the right matter as each will have their own role in the sale process. Another benefit of having a team is they can provide you with difference perspective. They can become your very own independent and unbiased sounding board in their respective areas of expertise.
Here’s What To Do Next…
If you’re not really sure what’s involved in planning for your business exit, what opportunities and risks you should be looking for, or how to maximise your business’s value while still enjoying your lifestyle, here’s how I can help.
Each month I hold a small number of Start Scale Sale Reviews designed to help you grow your business with your exit in mind, while ensuring you can take advantage of your opportunities while minimising your risks.
Join me for a complementary and obligation-free Start Scale Sale Review where we’ll:
- Do a complete analysis of your current position. To get you started, we’ll sit down together and look at your overall financial position, talk about your goals, and look at the potential your business has to be very attractive to a buyer. We’ll look at ways you can then maximise your opportunities and minimise your risks. We’ll explain everything for you so it all makes sense, and you’ll know exactly where you stand when we’re done.
- Explore your options. Based on our analysis of your current situation, we’ll outline your options for growing and ultimately exiting your business. We’ll also highlight ways you can grow and secure your personal income and your overall wealth, while paying as little tax as possible. Having an impartial expert help you get everything set up on a solid foundation can help you identify the best opportunities, and prepare for or avoid any risks, which can significantly improve your financial position and build a business that enhances your way of life.
Please Note: Your review will not just be a thinly veiled sales presentation. You will be provided with actionable ideas for growing your business with exiting in mind, regardless of whether we decide to work together or not.
If we believe we can help you even further, you may be invited to become a client, but your decision to work with us or not will be completely up to you.
So if you’d like to register for a complementary and obligation-free Start Scale Sale Review to discuss how to make the most out of starting or buying your own business, even if you are just a little bit curious, let us know by using this contact form or call us on us on 1300 740 066 and we’ll set up an appointment to meet with you.
I’m truly looking forward to meeting with you.
James Huy Vuong