Did you know that the latest statistics show that 64% of family business owners would seriously consider selling their business if approached? My question to you is, “if you were approached today, are you certain that you have an attractive business that would receive the best selling price possible?” In most cases the answer will be NO and you need to ask yourself, why?
The first of the Baby Boomer generation have already reached 65 years old, meaning in the next 10 years, there are going to be more businesses for sale than ever before. How will you make your business stand apart from the clutter of offerings? After working on succession plans and exit strategies for over 12 years, here are the 8 key areas we’ve constructed to make your business more attractive to a buyer and allow you to ask a higher selling price:
- Key person: this is very common in small business whereby the business is reliant on the presence of its owner to operate. Ask yourself this question, “would my business be able to continue running with no interruptions if I picked up my bags and went overseas with no phone or email for 3 months?” Most business cannot comfortably answer that question.
- Financials: the first thing I look at when reviewing a business to buy, be that for myself or a client, are the financials. The numbers never lie… which is important when someone may be trying to sugar coat their business performance in conversation. A solid set of financials and tax returns that are completed very soon after the end of financial year show that you are proactive in your approach to running your business. You should also keep on file any monthly management reports your Virtual CFO prepares and reviews with you, plus company secretarial documentation if applicable like minutes of meetings, resolutions etc.
- Marketing and Sales: every business is made up of 3 core ingredients, marketing, sales and delivery. You need to continually be attracting new leads (marketing) and then converting them into paying customers (sales). A business that is able to generate and convert new clients on its own (deliver) is very valuable to a buyer.
- System: A business with cloud based software that allows you to track and monitor the different aspects of your business not only creates an efficient business but also increases productivity of your team. At BJT, we suggest a number of secure software platforms. Comment below if you need suggestions.
- Policies & procedures: do you have documented policies & procedures for the operations of your business? Think of it this way, if it is a repetitive task, it can be automated. McDonalds is a perfect example as they have very thorough operations manuals for each job position. This is a very neglected area of small-medium business and can be a real differentiator when it comes time to sell.
- Employees: I spoke in detail about how powerful it is to your business to have an amazing team around you back in our article on the BRW Top Places To Work. Keep in mind that your team get up every day and come and work in your business every day, performing vital duties. They make the business what it is.
- Governance arrangements: “Management is running the business, corporate governance is making sure the business is run correctly.” Here is a great document titled Corporate Governance Principles and Recommendations which was prepared by the ASX. I’ll be tempted to post a future article mystifying the importance of this concept.
- De-risking: investing generally boils down to a simple calculation: risk x return. You want to minimise your risk and maximise your return. Some like relying on a key person (point #1), or perhaps a large supplier or a large client? All of which are risky.
I’ll be doing a future post on intergeneration transfer of business which focuses on how businesses pass from one generation of a family group to another which not only plays in with your exit strategy, but may be your actual exit strategy. Click Here to Subscribeto get on our list and receive similar posts like this into your inbox each week!