Are you dreaming of selling your business one day? Preferably at a great price that will allow you to retire comfortably?
You may have read my last blog, in which I discussed how Baby Boomer business owners will be retiring and there will be a wave of business successions or exits as a result of those retirements. This can affect the value of your business and in order to sell it successfully, you will have to present it as well as possible. You can read more on this here.
However, what happens if you can’t find a buyer despite your best efforts?
Here are six ways you can plan a successful exit from your business:
There are always companies looking to acquire or merge with businesses that complement or expand their core business. The purchase is considered “strategic” because it expands market share, affords economies of scale, or adds products and services that dovetail with or complete the current offerings of the acquiring company.
Considering the large number of businesses that will be hitting the market over the next 10-15 years, only the most profitable, highest regarded, or fastest growing businesses will be strong candidates for an acquisition at full market value.
Businesses that could be a candidate for a strategic acquisition but whose profits or growth curve are weak or aren’t quite a perfect fit in their offerings for an acquiring company may still be candidates for acquisition. The problem, however, is that they won’t be able to command their full market value. Because they’re not as attractive to a strategic buyer and because there will be so many of them, the only incentive to complete the deal will be to lower their asking price – sometimes significantly.
One of the better options for many businesses will be to develop a successor and sell the company to them at full price. Their successor may be one or more family members, or one or more key executives within the organisation. Some banks may be willing to fund the buyout, but as the number of businesses for sale increases, the majority of internal sales will be paid for out of future cash flows.
Therefore, it becomes critical to identify a successor as soon as possible, determine whether they actually want to own and run the business, and then ensure they are well-prepared to be an effective leader and a successful owner. It generally requires one to two years of development to hone someone’s leadership capabilities, their strategic thinking, and their judgment. Without that development, you run the risk of the business not being able to make those buyout payments.
A variation of selling to a successor is to bring on a successor to run the company but not sell the business itself. This option allows the owner to draw out the business’ value from the company while still owning it, but without needing to run it on a day-to-day basis. It requires finding and developing a strong successor, and then rewarding him or her for good performance.
In the absence of a strong successor, an option that will also yield full market value is to set up an Employee Stock Option Plan (ESOP). This approach can increase employee loyalty and productivity, ensure business continuity, and gain some tax advantages. An ESOP can be effective, but it requires one or two years of planning, along with the training and development of the people who will be directing the organisation.
If a business can’t find an individual buyer, is not a candidate for acquisition, has no successor and isn’t able to structure an ESOP, the only course of action will be to close down the business and sell off the assets. Obviously, this is the least desirable outcome. We believe all too many businesses will be facing this stark reality if they don’t put plans in place at least two or three years prior to a planned retirement.
The bottom line is that if your business isn’t in high demand and you’d like to sell it for a the best possible price then the best course of action is to create a plan and start implementing it now!
If you need any support with implementing one of these options, Ascend Business Partners are here to help! We are experts in helping business owners creating and implementing a plan for their ultimate business exit or succession. Our Managing Partner, Greg Johnson, is a Certified Practicing Accountant, Certified Exit Planner and Business Broker.
Our focus is on creating exceptional personal and business outcomes for business owners by helping you to identify the best solution for you and your business and supporting you during every stage of the transition process.
Contact Ascend Business Partners today on 03 8794 7777 or firstname.lastname@example.org to have a discussion about the options for your business sale or succession. Or simply book a free 1-hour “Time to REFIRE” workshop with Greg!