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PKF Australia

Accountants and Business Advisers

Plan your business sale and reap the rewards

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Chad Russell

Partner

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Plan your business sale and reap the rewards

At this time of year, the full year financial results start to roll in and the magnitude of what people have created with their business becomes evident. After the high fives have finished and the celebrations die down, talk turns to the future and often the question “should I sell?” comes up.

You might ask, why does planning a business sale early, get a better result? The answer is simple – getting your business exit plan right will maximise your sale proceeds but what’s surprising is how few businesses have even thought about an exit plan.

We know that preparation is key to maximising your sale proceeds and we know that a large proportion of small businesses in Australia are owned by baby boomers meaning that many businesses need to change hands in the very near future, so why is it that so few are prepared?

The reality is that for those who wake up one day and decide that it’s time to sell the business, most either won’t find a buyer or they’ll get offered an amount which is nowhere near what they are asking.

Getting prepared doesn’t need to be hard. Your exit plan should at least consider the following:

  • Your goals (when do you want to exit? How much do you want for your business? Will this be a full or partial exit?
  • What does your business need to look like to achieve your desired value?
  • Who is your buyer and how will they fund the acquisition?
  • How does all this fit in to your strategic plan?
  • Tax (maximise after tax sale proceeds)
  • Implementation plan.

What’s the business worth?

Considering how much you want is always an interesting one. It’s important to first understand how much wealth you want to comfortably livet for the rest of your life. If the business is worth enough to satisfy that, then you’ve nailed it! Once you’re aware of that magic number, you can work backwards to identify how the business needs to be performing to justify that value and then implement the strategies required to get there.

Who is your ideal buyer?

Understanding your buyer is critical as it can really shape how you go about the process. For example, if you are considering selling to your children or the management team, it’s very different to selling to a sophisticated buyer who has done it before or is already successfully running a business – a key difference is access to funding. It’s often difficult for the children or management team to convince the banks to lend them the capital required to take you out as the banks want bricks and mortar security and there usually isn’t enough of it. Selling to these parties could require some creative thinking to find a deal that will work for all involved.

Ensuring your business is saleable

The real challenge comes next, but it leads to the reward – if there is a gap identified when considering point two (above), what are the steps that need to be taken to bridge the gap? When are they going to be done (keeping in mind the timing goal from point one)? Who is going to do them? The steps will likely incorporate things like:

  • Growing revenues/profits
  • Building systems and processes
  • Making the business less reliant on you
  • Improving governance

Implementation of these business improvement actions will be critical in achieving the exit of your choice. Small changes can have a big impact on value – if you’re unsure of the  changes your business needs or how improving the things above will impact on your business value, speak to your business adviser or send me a note – I’m happy to help.

If you don’t plan….

What happens if you get this wrong? For a lot of small business owners, it will mean the business they have worked so hard to build up will end up folding – the nest egg won’t be realised and they will be reliant on the age pension for retirement. Not an ideal scenario.

You need to start the process – work out what you want and then transform your business into something that will attract that value and is ready for sale.  Don’t be one of the people that doesn’t do anything and is left with disappointment. Simple changes can lead to phenomenal outcomes so get them on your to-do list and create your Future of Choice.


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