How to sell your business and get more for it
Do you know that only around 30% of businesses on the market get sold?
The reason for such poor results is that the business
Comes to the market unprepared, no figures or documentation
The business simply does not make a decent profit
The Business isn't transferrable or saleable
Owner is asking too much
Businesses have been sold in as little as three weeks, from listing to Settlement. Why?
These business were well presented with excellent documentation, good systems, great staff and the Owner priced the business to the market
When is the best time to sell?
Some owners only consider selling the business when things start to go downhill, they are run down or have an illness. This is not a time when you can get a premium on the business, if you have to sell, you can still set up your business to sell and get the best price, in the circumstances.
Ask yourself, “If my business was making the money I wanted, would I still sell the business”? If the answer is “YES” or “NO”, the following may assist.
You should run your business as if it was always ready to be sold. There are things that you should have in place in the operation of your business that underpin everything that you do. Read on.
“Failing to Plan is Planning to Fail.” Not always true!
Many businesses Owners never plan, but survive through the individual strength of their owner, the category of the business or the location of the business. Even if they never really thrive, they still survive. The owner knows where they want to go (the vision thing) and tells the employees what to do (the action part).Even if the results are mediocre, the business can still survive.
Others feel that planning is a waste of time since the only thing you can say for sure about the resulting written plan is, “That’s exactly what we will NOT look like in five years!” True, but irrelevant. Both are correct and both are wrong, but for different reasons.
Vision drives Values which guide Actions which produce Results, (good or bad)
If we accept this, then it’s clear that value comes from the planning process and or the written plan. Vision and the identification of shared Values make clear which Actions should be selected to achieve the desired Results. It’s about making choices and empowering employees.
The Actions (strategies) provide for the accountability of the Results.
However, if the written Plan becomes sacrosanct and creates inflexibility it’s unfortunate, since the written plan is not as important as the planning process. The written Plan is typically just a “final report” on the planning process, so the work can be shared with others.
Therefore to maximize the benefits of planning it needs to be a periodic assessment of the business and where the leadership wants to take it instead of a one-time event, just so we can say we did it.
Since strategic planning is forward thinking, how does Succession planning, Transition planning, or Exit planning fit into all this? For the privately-held company, how can the owner’s personal lifetime desires and goals get factored in? If strategic planning is a collaborative process involving key employees looking outward to the company’s future, then exit planning is the singular process of the owner(s) looking inward toward their personal future. Clearly unforeseen events (or opportunities) might cause the exit plan to become obsolete. Therefore, some bottom line thinkers might see exit planning as just a waste of time and money. Maybe it is. But, it’s the discussion of the options and opportunities that generates the value in exit planning; not the preparation of a written plan.
There are four stages of business development that causes a corresponding leap in the value of the business. If the owner’s objective is maximizing the value of the business at the time of their exit, then effective planning is likely the most productive way to achieve that goal. Below are the four levels for you to assess where your business is today. As a business moves from one level to the next, risk is reduced and value increases significantly to a prospective buyer. However, it’s only through effective planning and employee empowerment that a business can progress much beyond Level One.
Level One: An Owner Driven Business. The owner makes it all happen. Because this level of business is highly reliant upon its owner, the risk of the business losing its profitability following a change in ownership is at its highest.
Level Two: A People Driven Business. Key people other than the owner make the business happen. At this level, succession related failure is reduced, but it still plays a role due to the fact that key people may leave and take valuable information and even customers with them.
Level Three: A Process Driven Business. The business is run by systems which greatly reduce the risk of failure after a change in ownership. At this level, systems are in place to ensure that operations continue according to the Plan, with or without the owner or key employees so the business is set up fairly well to run itself. It’s obvious why this business has greater value.
Level Four: A Culture Driven Business: In this environment, the culture (driven both by systems and key people) makes the business happen. The culture indoctrinates new hires into an environment of continuous improvement, based upon management and information systems already in place.
It’s frequently businesses operating somewhere between Level Two & Three that are most attractive.
Once you identify which level best describes your business, the next step is to ask yourself, “Am I willing/able to give up more of my personal control?” Many entrepreneurs are unwilling or unable to give up their tight control for which they believe in their heart is what got them through the risky Level One. But, they can’t get to Level Two since the message in their head is, “No one can run this business as effectively as me.” This mental message is fairly typical. It derived by emotional thinking and where the owner generally is working within the business, not on the business.
“Micro-managing, Benign Dictator” or “Autocrat” are terms which the employees of many Level One & Two companies use to describe their owners, even when they love them as people. If the owner cannot change, the business probably has just outgrown them. For the sake of the future of the business, a sale may be the best action. Even though value for the business has not been maximized, it may already have been maximized for that owner.
Getting your business ready for sale
Look at your business with new eyes. Write down what your business does and how it does it. How do you make the money? Look at the systems within the business. If you can identify the Sales process, Buying process, Administrative process, Employment process, Cleaning and Maintenance process, Financial process, Advertising and Marketing process, start to write down the steps and the systems / facilities used.
Have you identified all your customers by sales volume, frequency and profitability? Do you have details on all your key staff, their experience and knowledge, their responsibility within the company, their particular job description and how do you or they assess themselves in productivity.
Do you have a Policies and Procedures, Human Resources, or Work Place Health and Safety Manuals?
The objective of establishing these systems
The objective of establishing these systems or recording them is to reduce the risk to the Buyer. In doing so, the owner may reduce their personal control and establishing systems they are able to make their business more attractive and sell the business for a greater multiple of EBITDA.
Put all revenue through the books
Some owners of small businesses are temped to minimise taxation by not putting all income through the books. Many years ago this was thought to be a clever way to run a business. Today it is simply more efficient and straight forward to show all income and expenses.
When a Buyer looks to buy a business, these days, your financial accounts are going to be scrutinised by the Buyer, their acountant, their solicitor, the bank manager, and other 'so called' experts, such as friends, family and mates. This is because if a Buyer requires financial assistance, from what ever means, a clean set of books is the basis of raising such finance. Institutions or friends or family eventually want their money back.
Fund providers do not give much value to "there is cash on top of these figures" or "there is loads of potential" These comments no longer hold much credibility.
The best way to achieve maximum value for your enterprise is to have your business accounts ready for 'due dilligence' well before you are ready to sell. This will ensure there is no problems when a Buyer is found.
Financial documentation is easy now
Today it is easier than ever to have a good set of books set up and maintained. If you cannot read financial reports go talk to a Book keeper an Accountant, a Bank Manager a Financial Business Coach or sometimes the best unbiased free advice you will get from a AIBB Business Broker here at Business Brokers Network Australia.
Contact any of the Business Brokers listed on this website in your state