Going into business can be a very rewarding experience, and going out of business making a profit can be even sweeter. However, it is estimated that only 21% of businesses owners ever sell their business.
Many business owners believe that when they’ve had enough or are at retirement age, they can sell their business and get a nice little addition to their retirement plan. What they often don’t realise is that they need to get their business sale-ready first in order to maximise the value of their business and have any chances to sell it for a good profit.
The right time to sell
The timing of a business sale is very important and it’s best if you can be in a position to determine the right time for yourself and your business. When you’re forced to sell because you’ve experienced a shock life event that stops you running your business, you might be in for an even greater shock. If you haven’t got a well-planned exit strategy in place, you could face a significant drop in sales value or worst case scenario, you might have to walk away and close the doors to avoid incurring more losses.
The right time to sell is when you AND your business are ready. When you have come to a point in your business life where you feel that you are a slave to your own business and you just want out, it’s almost always never the right time, that’s if you want to make a profit on the sale.
To get yourself ready for the business sale also involves being clear about what you want to do next, be that retirement, a world cruise, or invest in another business, or find a job. You need to have your personal finances and retirement plan structure in order so that you can maximise the benefit of the business sale to you and your family. After all, you don’t want to give away the profits from the sale to the taxman if you can help it.
As an accountant and financial planner, I have had the privilege of helping many of my clients get their situation right first, and help them exit their businesses highly profitably. It takes some thinking through and is not something that happens overnight. If you’re not clear on what to do, you can start by contacting us at www.tradiesadvantage.com.au and arrange for a FREE Financial Health Check for your business before making any rash decisions.
How to get ready for a business sale
As mentioned before, very few business owners ever manage to sell their business. What’s even more concerning is that most businesses that present to business brokers are sent away again, because their business is not ready for a sale.
What business brokers are looking for in a business, aside from profitability, is whether the owner has implemented robust workflow processes and administration systems. They will be looking at all your financials and examine the integrity of your record keeping. They will check out how the workflow is and will want to get a sense of your staff culture.
So before you even approach a business broker, you need to make sure you are running your business like a well oiled machine, have Profit & Loss Statements at the ready and be confident that when they walk into your business to do their assessment, that they are satisfied with your operations, both on paper and operationally.
Further, business practices change over time, and if someone wants to buy a business for their future, they will be looking at a business that demonstrates contemporary work and management practices in their business. Your business needs to be attractive to the potential buyer, before they even decide to perform their due diligence research into your business.
Attraction factors are not always within your control because they can be very subjective and particular to the buyer. However, it’s at this point when most businesses that are for sale are being de-valued by buyers. In the eyes of the buyer, a business suffers a drop in value when they discover that you’re not using the latest online accounting software, have no documented procedures for staff to follow, and that your debtors and creditor processes are out of control, let alone show good cashflow etc.
When you’ve worked hard to build your business from the ground up, you are right to expect a financial return when you want to sell your business. You just need to spend a little time working out an exit strategy that will work for you and do your homework.
Please Note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances. Copyright © 2017 Robert Bauman.
Copyright © 2017 Robert Bauman.