Is it the right time to sell your business?
The sale of your business will be one of, if not the biggest, financial transaction you will complete in your lifetime. Coupled with the fact that it will often be timed with your exit from the work force it is likely to be the most transformational non-family issue in your life. The unique characteristics of businesses, and relatively small numbers of buyers (in comparison to property or listed shares) means that timing can have a material impact on the chances of a successful sale and/or the quantum of proceeds received.
We have outlined a number of common factors that can influence whether the time is right:
- Financial Performance. A business that has been delivering year on year growth in earnings indicates the optimal time to commence a sale process (for sellers). This upward trend demonstrates the strong position of the business in its market, quality of management while still providing upside for acquirers. Conversely, there will be greater difficulties in finding buyers and lower valuations for businesses with declining earning or margins.
- Capital Market Trends. Positive industry trends or focus may create an opportunity to sell, with a more competitive sale process and higher valuation multiples. Clearly, these factors are beyond your control, so being prepared to commence a sale process is key.
- Industry trends. Wider industry trends in which your business operates can impact the perception and appetite of investors. For example, if an industry is exposed to price pressure as a result of imports (Australian steel) or outsourcing (professional services) or servicing a declining market (Service and Capital Goods providers to the mining industry) the number of investors interested is likely to reduce, irrespective of the performance of your business.
- Management Team. A stable, competent and motivated management team will make the business more attractive to (most) potential purchasers. The quality of the management team will provide confidence to purchasers that the business can and will function without you. Management teams may also participate with investors as part of a Management Buy Out (MBO).
- Personal Situation. Whilst maintaining or growing the business cannot be guaranteed, does the sale of your business meet your lifestyle and financial requirements? The key factors that need to be considered are:
- Will the capital provided from the sale of the business provide the required income to support your lifestyle;
- Are you ready to give up work; and
- Are there alternate employment options that you would consider noting there is likely to be reduced income and flexibility?
- Unsolicited approaches. The cost to complete a competitive sale process can be expensive with no guarantee of finding an immediate buyer. If an unsolicited approach is received from a “logical” buyer it may be your “white knight” and worth pursuing. It is recommended to engage corporate and legal advisers in this instance to set a framework around the process, maintain confidentiality, protect your interests and negotiate on your behalf.
The common thread for all successful business sales, and the ability to maximise the proceeds is being “prepared”. Good record keeping and strong management reporting enables you to move swiftly to capitalise on market opportunities and respond to unsolicited approaches without compromising value. If selling your business is part of your overall financial strategy it is recommended that prior to being ready for sale you identify corporate advisers who can work with your existing advisory team. The established relationship will minimise the stress in selecting an adviser in the event of an unsolicited offer, and open dialogue and communication so that you are in a position to capitalise on market opportunities.