A common theme we discuss with our clients is the concept of getting your business “sale ready”. And the recurrent focus for many of our clients is that they would prefer to focus on current, urgent, issues – tax, cashflow, HR, accounting software and the like.
However, increasing the sale price of your business will make a significant impact on the retirement and family succession plan for many business owners. So why not start getting the business sale ready now?
Getting the business data clean is good business
Many questions that a business purchaser requests are specifically designed to give insight into the profit drivers and operations of the business. This same data will give current business owners insight.
Unexpected things happen
The sale of a business can happen for a range of reasons – sometimes owners become divorced, sick or they just stop wanting to work in the business. If you start to get your business ready for sale in a moment of difficulty you simply won’t have the time and space to do everything necessary.
Critical sale documents like forward cashflows, HR procedures, QA manuals, and a working CRM do not happen overnight. They take time to create and implement across your team. And it is these same documents that significantly increase the value of your business.
Likewise, the sale of a business does not mean that bad things are happening to the family owners. In some instances, the sale of the business has come about from an unsolicited offer – but the concept is still the same – the sale documents must be prepared in advance of the offer.
Long data is more reliable
A potential buyer of a business will look at forecasts (like Futrli) for your business if they can be relied on. And the easiest way to prove the credibility of a forecast is when your have prior forecasts that have been met within the business team. These are typically supported by board minutes or action items with your accountant or business advisor.
Too often we look at reviewing a potential business and the only forecast ever prepared is the current forecast which – surprise – shows a massive upswing in profits in the future.
The tax impact matters
Sadly, the small business CGT concessions do not automatically happen for every seller. The rules are complex and a small mist-step in your structuring of the business can result in a loss of tax concessions.
Checking your eligibility in advance and making small changes to ensure you qualify can potentially save you half of the sale proceeds on your business sale – but these cannot be done during the due diligence of the sale process – you simply do not have time.
The multiplier makes a compound effect
If you can increase the amount of your profits and the multiplier effect of your profits you can get a compound effect on your business. A four-fold increase in profits and a four-fold increase in the EBIT multiple does not create an eight-fold increase in the sale price – it is 16 times increase.
If you get the business sale ready you don’t need to sell
We will often see clients undertake the hard yards to get the business sale ready. And the effect is that the business is easier to run and becomes more profitable.
In this case the best decision is for the owners to keep on operating the business rather than sell. It becomes a business that is capable of running under management.
Understanding what a purchaser looks for in a business takes knowledge, experience and a diversity of views and approaches. At Westcourt we have actively helped clients prepare sale documents, information memorandums, board packs, forecasts, HR documents and the other critical information to allow a business to become sale ready.
Talk to one of our team today to find out what small steps you can make today to create a great long-term outcome.