If you had to sell your business tomorrow would you secure the maximum value?
Do you even have an end goal for your business? While you might be in the thick of it now and enjoying working on the business, thinking about your exit plan early is the key to maximising the true value of your hard work. If you haven’t considered the end game, then it might be time you did.
Ideally, a business owner should start planning the sale of their business at least two years in advance, although five would be better. This allows plenty of time to work on maximising profitability and improving internal systems. Having the foresight to plan toward pre -sale preparation will ensure you maximise value.
Two major factors contribute to the value of a business. The first is the future earnings and the second is the risks to future earnings. Risks can be reduced with systems and procedures in place that allow for a smooth transition to the new owner.
Your business operation needs to be less about you and more about the product and service you provide. We often find in the smaller SME’s that the business owner can become the business which can reduce the saleability even though the business is profitable. Don’t get caught in this trap - set a focus on good human resource management and internal systems so the business operates without you. Transferring as much personal goodwill (owner-dependent relationships and knowledge) away from the owner and into staff and/or documented manuals and procedures.
In most cases, the factors that make a business attractive are excellent earnings, a low-risk profile and an easy transfer. The less work a potential purchaser has to do, the more motivated they will be to buy. Essentially, everything that reduces the risk for the new owner will help to increase its value.
Five areas to put some focus on:
Good financial reporting. Reports going back at least four years are ideal. Set time aside to review the numbers at financial year end. Put a plan in place to focus on financial areas of improvement.
A secure premises lease in place. Any business that is dependent on its premises or location needs a medium to long term binding lease agreement on fair commercial terms when it comes time to sell.
Well-maintained plant and equipment that is fit for purpose, but without over-investing.
A robust Human Resources policy and employment contracts.
Well documented systems and procedures. Ensure you have solid systems and processes that are integrated and easy to follow.
It’s never too early to start planning for succession and working towards an end goal ensures you will realise the value of the hard work you’ve put in. Give our team a call and we can take you through a structured process to help you maximise your return when it does come time to sell.