By Andrew Beattie, Andrew BeattieBusiness Advisory Director
24 February 2021
In 20 years of advising business owners I believe there to be four overarching things that business owners want from their business.
- Higher revenue and profit (or higher yield);
- A better lifestyle;
- To enjoy what they do; and
- A saleable asset.
Arguably it could be said that these are very much intertwined however. in this article I particularly want to focus on that last point being ‘a saleable asset’ and more specifically have you considered if your business is sale ready?
When we talk of sale readiness it does not necessarily mean you are selling but it more refers to is your business in the best position to sell? to maximise its value? Most business owners rely on their business as their main asset to contribute to their retirement yet do very little, or do not give themselves enough time, to maximise their outcome. What we find is that when the focus is on sale readiness, the other points above are often achieved as a by-product.
Recent studies indicate that about 80% of small and medium businesses in Australia are owned by Baby Boomers which effectively means that the market for business sales will be saturated in the short to medium term with opportunities for buyers. For some time now sellers have been able to effectively ‘wing it’ and get a decent result however going forward this will not likely be the case as the supply and demand equation begins to change. Even though this is known, less than 25% of Australian business owners have a succession plan and unless a different approach is adopted, busines owners will likely get a much lower sale price than what they need for their next chapter or worst still, they may not have a buyer at all. So how do business owners stand out from the crowd and become sale ready? Three key elements are more important than others:
1. Understanding your exit options and setting a time based plan;
2. Following a structured program; and
3. Involve an experienced adviser with an independent view.
There are several options for business owners to consider regarding sale or exit, from a trade sale to a management buyout, to a generational change. To understand which option is right for your business you need to ensure you understand the likely buyer or buyers, what issues could impact the price and ensure you have enough time to work on what you have to in order to maximise your position.
To understand any issues, put yourself in a buyer’s shoes and be objective and conservative when completing a SWOT analysis. In order to maximise value in an external sale it is all about demonstrating sustainable earnings without the reliance on the owner or other key people or customers.
A structured program will assist with effective implementation of actions resulting from the SWOT and provide a framework for accountability.
At PKF we utilise a program called Amplify which covers issues such as strategy, appropriate legal structure, tax effectiveness, performance, organisational structure and role expectations, risk management, funding and valuation amongst other things. Ideally the program will help create defined systems that are replicable and turnkey without dependence on daily input or instruction. By covering all of the areas an experienced buyer will consider gives the best opportunity to maximise a sale outcome not just from a price perspective but from an after tax cash perspective and key terms of a deal that can often catch sellers out.
It is imperative to utilise an adviser, or advisers, in this process to achieve your best outcome. Many business owners I talk to say, ‘but I have an accountant’. Whilst this is a great start I would question if you want your general practitioner to be completing your open-heart surgery? When selling a business, you often get one chance to get it right. You need an experienced adviser that knows more than theory to not only be involved in the sale but to be there along the sale readiness journey as this is often just as important. The right adviser will be your sounding board, will be happy to challenge you, will support you and most importantly will keep you on track to the goals you established at step 1.
At PKF, we work with business owners directly regarding sale readiness; both where we are the main accountant or adviser and where we are not. In many cases we have general accountants that ask us to assist their client and they are also involved in the process. In other cases, we will simply support the general accountant. Whatever the situation we bring a wealth of experience and skill in this area to the table to ensure a business is sale ready.