|
|
|
Is Owning a Business Like Owning a Boat?
Ask any boat owner and they will
tell you the two best days in a boat owner’s life are the day the boat
is bought and the day it is sold! Notwithstanding all the
enjoyment that comes from owning a boat on a sunny day there is an
abundance of hard work and many days with stormy weather that create
risk and stress.
Owning a business is the same. First day is a very proud moment where
you have achieved a dream. On day two the slog begins. Hopefully there
is more sunny sailing than risky storms but inevitably for every
privately owned business a day comes to sell. For many owners who have
spent their working lives building their business, the sale is the
anticipated money day where they will realize enough capital to retire
or move onto another business opportunity.
The reality is that most
business owners do not plan for their exit and face situations where
they do not maximize the value of their business. So what are the key
things that are needed to maximize the value of your business on sale?
1. Keep Tidy Accounts. A buyer wants to see a track record of
success so accounts that have been inter-twined with personal and
uncommercial (like not paying commercial salaries to the owner) can
muddy the waters. Sure, a buyer can make adjustments to historical
accounts but this reduces their comfort in the ability of the business
to generate good earnings, and earnings drive the price achieved on
sale.
2. Transfer Non Core Assets out of the Business. If you have
cars, land, surplus cash, loan accounts and other “non-earning assets”
consider transferring them out of the business before putting it on the
market.
3. Tax Management is a Long-Term Issue. Ensure you take a long
term view with tax matters and look at the overall effectiveness of your
structure. Hopefully sale is the time of maximum value extraction and is
when tax efficiency is needed most.
4. Get Important Contracts in Place. The greater certainty you
can provide with respect to employees, customers, suppliers and rented
premises the more certain your forecasts and the greater price earnings
multiple a buyer will pay. Apart from being good ongoing strategic
business management, imagine the difficulty and resistance you would
face telling employees, customers and suppliers that you want to sign a
contract with them because you are about to sell the business.
5. Have a Solid Business Plan. Most businesses are sold with some
form of sales memorandum. This can come in many different names and
styles but in essence it is the business plan and it should show the
business model, the marketing plans and financial forecasts.
6. Document the “Invisible Balance Assets”. Most balance sheets
do not list many assets of the business such as the employees, the
customer base, brands, goodwill, know-how and so on. Most businesses are
worth more than the asset value that sits on their balance sheet and a
concise summary of these assets should help a buyer fully appreciate
what the business has to offer.
7. Eliminate the “Invisible” Liabilities. What contingent or
unrecorded liabilities might emerge during a due diligence process? The
psychological advantage you should have during the sale process is lost
to the buyer if they discover the skeletons in the closet.
8. Maximize Current Performance. Make sure that the business is
having a good year at the time of sale. Don’t take on projects that will
have a short term negative impact on your P&L. Look at payback periods
not ROI when making investment decisions.
9. Take the Owner “Out” of the Business. The more the business
can operate without the owner the more attractive it will be to a buyer.
Taking the owner out means systemizing the business, creating job
descriptions and clear roles for employees and developing the capability
of the team.
10. Manage Communications. Don’t put your business up for sale
until you are ready to sell it, and ensure you have communicated to the
important stakeholders at the appropriate time. Manage expectations
through regular updates rather than dealing with a rampant rumor mill.
Selling a business should be a great experience for those who have
worked hard over the years but much of the preparation must take place
well before the business is put up for sale. Succession planning is
heavily dependent on strong and ongoing strategic management over the
life of the business, not just trying to sell it at the end.
This article was first published in AccountingWEB in July 27, 2005 in
a special section on Succession Planning which featured discussions and
papers arising from a Breakfast seminar on this topic.
|
|
