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Before putting your business up for sale, ensure that your business is sale ready. Having a business exit strategy will increase your chances of achieving an outcome that meets your objectives and ensures that you achieve a good return on your investment. With more and more businesses coming on market, being sale ready is more important than ever.
Businesses that are well managed and profitable will always be sought after. To ensure that your business is ‘sale ready’, check that the following is in order:
One of the key considerations when assessing the readiness of your business for sale is the businesses level of principal reliance. If your business is principal reliant it may be difficult to find someone willing to take over your business.
You will need to reduce the dependence of your business on the principal and any other key staff who will be leaving the business at the time of sale.
In order to rectify this situation it is important to start planning for the sale of your business years in advance. You may decide that an internal transition of ownership is your best exit option. Do you have a future successor in your business? A key staff member is often the best person to consider as a possible successor as you can start transitioning client management and other responsibilities a lot earlier than if you were selling to an external successor.
Another key consideration is ensuring you have strong relationships with your clients, suppliers and business partners. This will lower the risks in your business and make it more attractive to a future purchaser.
There are numerous key value drivers you should focus on to optimise the value of your business and ensure that you get the most money for your business when it comes time to sell. In addition to the value drivers already discussed, some of the other key value drivers are:
The following is a guide as to what you need to do before putting your business on the market or approaching potential successors.
A helpful tool for checking that your documentation is in order is to complete a ‘Planning for Sale Checklist’. This is a step by step guide in preparing the information you will need to show prospective purchasers and is a good way of double-checking that your house is in order.
If you need support preparing your business exit strategy talk to our business advisory team today. MGI’s CFO advisory team and business coaches can help you get sale ready. Our succession planning services will help you make calm and considered decisions about the long term future of your business. Give us a call today to start preparing your business sale plan.
You might also be interested in our recent post on business succession.
Much has been spoken about the economic downturn that has come as a result of the COVID-19 outbreak. In our opinion, the key to operating a successful business and making money in an economic downturn or recession is to know where your business performs well and where it can improve.
The ‘signs’ of a healthy business are sustainable profits and strong trading cash flows. Whereas, the ‘symptoms’ of a business underperforming and at risk of being ‘infected’ by a recession or downturn, include declining sales and high fixed costs.
People who care about their health visit an expert – their Doctor. Business owners who care about their business should similarly visit an expert – their Business Adviser to complete a business health check.
If you haven’t felt the impact of COVID-19, all the better as prevention is better than cure!
To ensure your business remains healthy and continues to prosper in these uncertain times, you should undertake a business health check to protect your business from the full effects of a potential recession and better prepare you for recovery. MGI South Queensland can assist you with a business valuation and evaluation technology which includes a Risk and Value Driver Assessment Questionnaire.
The Questionnaire acts like a health check and grades your business in terms of its risk and pinpoints opportunities for value improvements.
Below is a sample of the many topics covered in the Questionnaire:
The team at MGI South Queensland have specialists available to help you with all aspects of business growth. Contact us to provide you with a copy of the ‘Risk and Value Driver Assessment’ Questionnaire as a starting point and we will help your business thrive, not just survive.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. MGI South Qld Pty Ltd accepts no responsibility for any loss suffered as a result of any party using or relying on this article.
One of the biggest small business risks can often start with the owner! In our many years of working with business owners, it’s not uncommon to hear the following:
“My customers will be with me until the day I die”.
“My business is my identity”.
“My business is my superannuation”.
If you agree with these sentiments, it is likely that your business is overly reliant on you.
You might ask, so what?
A business that relies heavily on its owner is not as valuable as a business that is not reliant on its owner. When we talk about small business risks, many business owners don’t understand the risks of key person reliance and how it can significantly impact the value of their business.
Compare the following valuation scenario of the same business when key person reliance is reduced or minimised:
|Business Key Person Reliant||Same Business not Key Person Reliant|
|Business Valuation Multiple||3.05||3.5|
Buyers will pay a higher price for a business that can be easily integrated into their current business or smoothly transitioned to a new principal. They will want some comfort that the business’ key customers and staff will stay with the business once the current owner departs.
There are many different business and risk management strategies business owners can implement to reduce or minimise key person reliance.
The table below provides some suggested examples:
|1. Business Systems: introduce systems into your business. For example, a good quality stock management system will reduce reliance on the owner’s product and services knowledge.
2. Client Relationship Management: establish customer relationship management protocols so staff can manage key customer relationships.
3. Management Succession: invest in the professional development of your key staff so they can eventually share in part ownership (succession planning) of the business.
|Risk Management||The very nature of some businesses means it is difficult if not impossible to reduce or remove key person reliance. A specialist surgeon is an example of an occupation that will always be key person reliant. In this case where key person reliance cannot be removed or reduced the purchase of business insurance is considered an effective risk management strategy.|
Start assessing the impact of key person dependency on your business by requesting a business valuation from your accountant. Your accountant is best positioned to provide advice on key person reliance, business valuation and business and risk management strategies to reduce, remove or minimise the risk from key person reliance.
The team at MGI South Queensland can help you with all aspects of improving your business valuation as well as exit planning strategies and business benchmarking for business growth. Our succession planning services will help you make calm and considered decisions about the long term future of your business. Give us a call on 07 3002 4800 or book a consultation online today.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Readers of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. MGI accepts no responsibility for any loss suffered as a result of any party using or relying on this article.
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