Specialists: Mal Di Giulio
It’s no secret Baby Boomers are approaching retirement age and with that, over the next two decades, a glut of small-medium enterprise organisations will become available for sale. How do you stand out in a potential over-supply crowd? Preparation, strategy and diligence.
After decades of advising on and guiding business sales, to strengthen your negotiating position and maximise your take home value, here are my top five items to ensure you’re sale ready.
1. Is it about the business or is it all about you?
Is the success of your business predicated on the charisma, reach and performance of an individual (or two) or is the organisation constructed to absorb the loss of a keyman and carry on as usual? To buyers, this is critical because it raises the question of good will: is it with the owner or the business? Buyers want to know they’re purchasing a robust business, a structurally sound environment which encourages performance not one hostage to the individual. If you’ve built your organisation around a star performer and that person leaves, what then?
Sustainability is key, it provides a level of certainty. Are you running a lean upper-tier operation with spread-thin resources, tethered to a bloated management team or running at the right level with scope for expansion? Depending on the answer, this creates or mitigates against queries regarding whether or not the organisation can meet and/or exceed future expectations.
2. Plan your exit: who, why, and am I in good shape?
An exit strategy is prudent. If you start with a clear end in mind, immediately, you’ve established two things: a goal and a pathway. Perhaps it’s early retirement, moving to a minority stake or building a family business and handing the reins over to kin, if only to compose demographic profiles of potential buyers and to describe your organisation’s health, an articulated exit strategy is sensible business.
Building from above, have you conceived what your buyer market may look like? Let’s take that one step further: what does a sensible buyer of your business look like and do they know you exist? Is your business constructed in a manner (including a robust business plan) that makes it an attractive purchase/acquisition? What form will the sale take place: trade sale, MBO, VC, IPO?
3. What is my business really/realistically worth?
The Dunning-Kruger effect is a cognitive bias which suggests people overestimate their cognitive ability. During the sale process, will you be disappointed, caught in your own Dunning-Kruger-like scenario having overestimated the value of your business or do you have realistic expectations as to the worth of your business because, intelligently, you’ve had your business valued and the organisation’s performance reviewed?
When the cheques are signed and the keys handed over, it’s worth remembering, it’s not enterprise value you’re walking away with, it’s the actual value sold for: what you put in your pocket, that’s what the business is worth to you. This increases the importance on what and how you sell the company, the type of structure it’s in, how you manage tax, working capital, warranties and earn outs.
4. Selling is about the process not brinkmanship
Don’t fall victim to a squeezing blood from a stone negotiation mentality otherwise you run the risk of the deal collapsing and negative sentiment running against you. Take emotion out by appointing an intermediary to manage the process. Conversely, you’ve spent a lifetime building your organisation, it’s OK to stand your ground or walk away from unreasonable demands. If you’ve followed the sale process, you’ll be prepared, and the result will come.
Appearances matter so how you present your business counts. Your presentation is an insight into the business and how it operates. Are you transparent in dealings? Do you service information requests in a timely manner? Do you offer suitable responses to queries? Do you table information in agreed formats? With a prospective buyer, every interaction is an assessment.
5. Get your ducks in a row
Do not wait until the eleventh hour to deal with issues, begin planning your exit well in advance. You’re intimately acquainted with your business which likely means, you’re in a strong position to get out in front of issues and deal with them. Run a fine-tooth comb through your organisation because, when given the opportunity, prospective buyers will cite key concerns aiming to drive the cost of acquisition down.
It may sound cliché but dot the i’s and cross the t’s. Due diligence is paramount which means ensure your structures are right, ironclad agreements are in place, financial information is in order and your management team is engaged, informed and capable of functioning under new ownership. Details matter.
The decision to sell your business can be both emotional and stressful. As this represents an opportunity to reap the rewards of your effort, you need to ensure you have the right team behind you. Nexia’s Investor Ready service ensures you stand out from the crowd and maximise your business’s value. Whether it’s formulating parameters of sale, identifying potential buyers, assessing financial information or performing due diligence, the difference a proven team guiding you through the process can make, is extraordinary. To enquire about Investor Ready, contact a Nexia advisor today.
