Every successful family business has an exit point planned well in advance – either selling to an outsider or the next generation. However, getting a successful sales outcome is difficult and takes significant planning. In this blog we focus on 13 key points that family business owners in Perth should consider when they considering Perth business exit strategies.
- Balancing the sale process
One obstacle a company and the family business owners face is setting the stage for a business sale. Selling a business is time-consuming, mainly due to balancing two critical but conflicting goals. On the one hand, the owners must dedicate resources to navigate the sale process and maintain the family business’s daily operations at peak performance – which is not easy in the competitive Perth marketplace.
Striking a balance between these two facets adds complexity to the task. When this balance is disrupted, the sales transaction might stumble, ranging from a lack of awareness to minor strategic errors.
- Get your thinking set in advance
To ensure a good sale, directors should start their preparations early to get the family business sale ready. This includes acknowledging that selling is normal in the family business lifecycle. Achieving success in a sale involves recognising it as a structured process, beginning with a positive mindset and progressing through a series of systematic steps. Early and thorough preparation is crucial for optimising the sale’s value.
A plan should be in place to address unforeseen issues as they arise. It’s essential to weigh both the current market trends and the internal state of the business.
Maintaining a sense of controlled urgency within the potential buyer’s team is also vital, emphasising the seller’s alternatives and the prospective opportunity for the buyer. The overarching aim is to sustain a high value while averting the exhaustion accompanying protracted negotiations. Sellers need to comprehend the perspective, key motivators, and critical factors that can make or break a deal from the buyer’s side.
- Maintain credibility and momentum
Unexpected developments during the sale process can disrupt the momentum of the transaction and diminish perceptions of the company’s value. Once the decision to sell is made, management must initiate the planning phase and prepare the company for sale.
Engaging in self-assessment and allowing sufficient preparation time empowers the seller to steer the process deliberately. If you eliminate the skeletons in the closet, you are less likely to be derailed in the sale process. Ultimately, the family owners must remain the guiding force throughout the process and show credibility.
- Understanding the value driver
Assigning value to a family business in Perth is often subjective. It’s like saying that beauty is in the eye of the beholder. The perceived value of a company hinges on the buyer. Understanding the buyer’s valuation perspective and how it relates to the company’s attributes and potential can lead to a more accurate valuation.
The buyer’s identity influences both the perceived value of the business and the strategic approach to the sale. Strategic buyers, often from the same industry as the seller, look for synergies with the seller’s business. Conversely, financial buyers pursue investments where significant financial leverage can enhance returns.
- Determining Value: Navigating the Numbers
For sellers, the valuation task ultimately boils down to straightforward, quantitative queries: What monetary value does my family business represent? How can selling even be approached without understanding the business’s financial worth? Is obtaining an official valuation and expecting buyers to match that figure a viable strategy? Naturally, the responses to these inquiries are not as clear-cut as the questions themselves. Benchmarks for market valuation can sometimes create unrealistic expectations, either too optimistic or too pessimistic.
Beyond analysing discounted cash flows and the strength of 3-way forecasts, primary alternative methods for valuation include comparisons with similar recent deals, the market pricing of comparable public companies, and the potential value in a leveraged buyout scenario. These methods, however, are highly dependent on the underlying assumptions made.
- Streamlining for a Sale
As you head towards preparation, family business owners should consider the timing for sale, bearing in mind two issues: first, it’s best to avoid circumstances forcing a hasty sale; second, sustain a state of readiness, allowing the seizing of opportunities as they come.
- Pre-Sale Preparation for a Perth Family Business
Key questions to address include the robustness of information systems, the strength and independence of the management team, the status of company assets and customer relationships, and the identification of enhancements that could make the business more appealing and valuable to a prospective buyer.
- Taking Corrective Measures
In the lead-up to the sale, family business owners often identify weak areas in the business operations in Perth, nationally or overseas. These could include a lack of audited financial statements, poor legal documents supporting IP, incorrect tax returns, late superannuation payments, accounting processes that are not documented and financial data that is not reliable. Addressing the complexities, hidden opportunities, and risks associated with human resources and tax considerations is also crucial.
If a sale to an international buyer is possible: demonstrating readiness to comply with global legislations, such as carbon accounting compliance, can enhance the value of the family business.
- Getting your HR right
The significance of the executive team can be critical for a buyer. This extends beyond the challenge of retaining personnel during the transition and encompasses the financial impact of terminating or maintaining key staff.
Prospective buyers will be keen to learn about retention strategies, severance policies, obligations regarding the duration of executive contracts, any transaction-triggered payments to executives and staff, union contracts, and superannuation payments.
If family members are transferred in the sale process clarity on their worth, entitlements, job roles and if ongoing employment is needed is essential communication. The application of employment laws in Perth and nationally should be considered when reviewing your HR compliance and team engagement to get the exit strategy for your family business properly executed.
- Taxation in the sale process
The objectives of both the seller and the buyer, the legal structure of the business, and the ever-changing tax regulations impact the tax strategies. Due to the myriad of variables, including the complexity of the small business capital gains tax concessions, family business owners should approach negotiations with a clear understanding of the tax ramifications tied to the transaction, particularly the distinct implications of an asset-based or share-based sale.
- The Data Room
The data room is where information is compiled, covering sale areas like financial outcomes, business catalysts, tax and legal matters, organisational structure, customer contracts, IT systems, insurance, environmental concerns, and human resources. It is a key communication point during the due diligence process of the family business.
Data “rooms” are digital platforms. These virtual data rooms accelerate the process, reduce costs, and enhance information management by, among other aspects, allowing differentiated access.
- Building Your Internal Team
During the sale, family business owners must choose the group of employees in the family business who are privy to the transaction details. The skill in this situation lies in carefully constructing the ideal internal team. Typically, starting with as few members as possible is advisable.
- Building Your External Team
Considering the limited capacity of the family business employees (who are also running the business), getting the help of seasoned external advisors can prove invaluable. Advisors streamline and expedite the process and play a pivotal role in accurately assessing the business’s value. At times, the existing long-term advisors are better placed on hold while a higher-level team can manage the significant transaction. They provide insights and guidance on complex matters, ensuring a smoother transaction. Moreover, advisors’ perspective is often essential, helping owners navigate the emotionally charged and highly subjective decisions that frequently accompany the sale of a business.
At Westcourt we have a depth of experience in preparing a family business sale. This ranges from pre-sale preparation, sale negotiations, data room management and due diligence or taxation on the sale. Given that our only focus is on families that own businesses, our proven depth of knowledge with taxation advisory, and our international reach through the Geneva Group International Network, we are a natural choice to talk to when you are contemplating a business sale – so why not talk to us today?