Matthews Steer Partner Adrian Misiano breaks down the perils and pitfalls of failing to whip your business into a sale-ready state, and highlights the value of planning, preparation and strategy when you’re looking to exit.
Post-COVID, we’re seeing a growing trend where long-time owners are looking to exit their businesses, perhaps earlier than we might normally expect, as labour and materials shortages and general post-pandemic fatigue take their toll. With a surge in businesses hitting the market, and interest rates rising steadily, vendors are facing an increasingly competitive environment. So, if you’re looking to sell, it’s critical to get your business operating at its optimum to stand out to potential buyers in your industry.
At Matthews Steer we use programs like our risk heath check, strategic planning, Catalyst program and virtual CFO services to help our clients to achieve a constant state of sale-readiness within their businesses. Elsewhere, we’re regularly introduced to business owners who haven’t prepared an exit strategy, or even spoken to an advisor, about how they should prepare their business for sale. As a result, they have only a vague idea of how to value their business, which can amount to as little as a need to recuperate the cost of assets, pay off debt, and add a bit on top of that for IP/knowledge capital/goodwill.
They go to market with this finger-in-the-air idea of the value of their business, expecting that because they’ve identified a price they want (or need) to achieve, they’ll get that price. But that’s not the reality. And that is where the vital importance of planning becomes clear. Remember when it’s gone, it’s gone.
Questions to consider when preparing your business for sale:
- Is my asking price – ‘what you want’ – realistic?
- Is my business buyable, or in a buyable state?
- Do I know my numbers?
- Do I have full clarity around all the elements that comprise my business?
- Is the return on assets within my business strong enough to be attractive to potential buyers?
- What are the business value drivers in my industry?
- How well is my business placed or regarded in my industry?
- What’s my BSR (Business Sale Ready) score?
What types of businesses should have a plan to sell?
Whatever your business or industry, part of running a successful business is having a plan for sale or exit. It doesn’t matter how much you love what you do, there will come a time when you want to step away from your business, and when you do you need to ensure that you’ve built solid foundations, mapped your financial future and transformed your efforts into wealth.
How long does it take to set up a business for sale?
Exiting a business isn’t an overnight thing. It takes strategic and financial planning and time to successfully extract yourself from an entity that you might have spent a lifetime building up. You need to base your decision-making on data, be clear on your numbers, budget and cash flow forecasts, have robust processes, an attractive brand, a strong staff and customer base, and have a strategy for taking your business to market well before the time comes.
When should I start thinking about getting my business ready for sale?
We advise our clients to ensure their business is always ready to sell! After all, if your business is ready to sell, it usually means it is a great business that’s operating at its optimum. We all know that in the real world, when your business is growing and you’re expanding and evolving, it can be hard to dedicate time and energy to undertake long-term planning. But ask yourself: when in your life have you ever been given something because you said you wanted it, or because you deserved it? The reality is that, rather like a kid who wants to be an AFL player when they grow up, to ‘get what you want’ is challenging. It takes planning, sacrifice and action.
Why is it important to prepare my business for sale?
Often when a business owner is approached to sell their business, it’s not because of marketing, it’s because of reputation and word of mouth. If a business is run poorly behind the scenes, this will reflect on its external reputation. By having your business sale-ready at any given moment, you will project an image that stands out in the marketplace, gets you noticed and increases the likelihood that you will be approached by potential buyers. Ultimately, a business that is in disarray behind the scenes will not be aspirational to those looking to make acquisitions in your industry.
Is my business buyable?
With the influx of businesses onto the market, it’s important to understand you are competing for buyers’ capital, which makes your preparation and sales strategy even more important than previously. You want potential buyers to feel convinced that your business is going to be ‘the best thing I’ve ever bought’. If your potential buyer feels that way about your business, it’s more likely to stand out from the pack and attract interest without you having to proactively market it.
What’s my BSR score?
You know your business, but do you really know your business? Profit isn’t the only sales criteria that will attract buyers. If you’re making a big profit but having to work 16-hour days, or putting undue pressure on your staff, to achieve that, your business is not going to be an attractive prospect for someone else to take on. You need to look beyond the bottom line.
At Matthews Steer we help Victorian business owners to determine how buyable a business is by scoring it on a defined set of parameters. Some examples of these include:
- Business performance: your data, numbers, budgets and financial forecasting.
- Sustainability: the long-term prospects of your business and the industry in which you operate.
- Risk: any outdated corporate structures, inadequate asset protection, undefined strategic direction, operational inefficiencies, lack of financial oversight.
- Ease of integration: will your business operations and systems combine with those of the business that acquires you seamlessly?
- Customer loyalty: does your business have the goodwill to maintain its customer base beyond sale?
- Staff loyalty and culture: can potential buyers count on your current labour force?
Strategic planning for the sale of your business
We map out your business’ profile based on these parameters, identify any weak points or areas of improvement that you need to hone in on, and help you formulate strategies to improve your business to a point where it’s extremely attractive to potential buyers. (This has the added benefit of building business performance, because a smart business – efficient, stress free, risk-minimising – is appealing to customers or clients as well as potential buyers.)
How ready is your business is for sale? Give Adrian Misiano a call, and he will take you through our confidential, obligation-free BSR Score assessment, and discuss the steps you need to take to prepare your business for a successful and rewarding sale.