A lack of preparation in today’s heavily weighted buyer’s market can dramatically extend the time required to find a willing buyer for your business or even render the business unsaleable, warns Simon Merchant, founder of The Merchant Report.
He says too many potential sellers are holding out as long as they can for the economy and business sale prices to improve. At the same time, buyers, their advisers and bankers are not prepared to accept the risks associated with the current asking prices of those businesses that are being offered for sale.
There are many reasons that motivate small and medium-sized enterprise (SME) owners to exit their businesses, but Merchant believes that it will be prolonged negative cash-flow that increasingly puts owners under duress in 2014 and persuades them to put their businesses on the market.
He says the first step in getting your business “sale ready” is to use the various tools that can help you understand the current market value of your business and its strengths and weaknesses through the eyes of a buyer. This kind of analysis will help you to identify the perfect buyer profile – that is, the buyer most likely to offer the highest sale price and attractive terms and conditions of sale.
“Be objective and conservative when deciding if your business is ready for sale,” says Merchant. “Many strengths of a business can be enhanced, and weaknesses mitigated, by creating a very simple strengths, weaknesses, opportunities and threats (SWOT) analysis and action plan for implementation during the time you can afford yourself prior to market – many at little expense.”
Broadly, the things potential buyers will examine include:
- How long has the business been established and how long have you owned it?
- How has your income and gross profit margin been trending during this time?
- How much does the business rely on you and how reliable are your systems and procedures?
Collaborating with a trusted business adviser will also help. “He or she will be able to drill down on many of these issues and provide you with perspective and local market intelligence. Ideally, a strategy can be developed hand-in-hand to stimulate buyer competition, come the time to launch your marketing campaign.”
Merchant says one of the most often overlooked items when preparing for sale is security of tenure, particularly if you are leasing your premises. “Be sure to check when your current term expires and what arrangements are in place for options to be exercised. You are selling a going concern and buyers will look to avoid as much risk to their future earnings as possible.”
He adds: “Two buyer segments that are growing across Australia today are the baby boomers and redundancy beneficiaries. If a business can offer lifestyle and security, then we should see buyer competition rise again in 2014.”
Redundancy beneficiaries are cashed up and prepared to buy themselves a job in a business that offers a sense of security. And, baby boomers, perhaps feeling they are overlooked in the job market, may be happy to direct their savings into a business that provides a significantly higher yield than more traditional passive investment vehicles.
“Baby boomers can often bring valuable management experience to SMEs. With the assistance of younger managers to handle the day-to-day operations, SME ownership does not have to affect their lifestyles unnecessarily.”
Meanwhile, Craig West, CEO of Succession Plus, says Australia’s free trade agreements (FTAs) with other countries also offer opportunities to sell your business.
“With supply exceeding demand in Australia for SME businesses, it makes sense for business owners to consider the dual benefits of exporting their goods and services overseas under FTA arrangements and promoting their businesses for sale or investment internationally,” he says.
“Australian businesses have a well-deserved reputation for excellence, innovation, consistency and reliability which, together with our high quality of life and multi-cultural population, underpins the attractiveness of Australian enterprises as a target for outbound investment or acquisition.”
West adds that many wealthy overseas entrepreneurs and high net-worth individuals are becoming increasingly interested in migrating to Australia to satisfy a number of long-term retirement, succession and quality of life objectives for themselves and their families. At the same time, the Australian government is encouraging high net-worth individuals to apply for permanent residence under the Significant Investor Visa (SIV) program which is designed to attract investment into government bonds, managed funds and private companies.
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