Should you sell your business or shut it down? How long will your business survive?
It sounds a bit morbid to ask this question but every business has a particular lifetime – only a small percentage of businesses have survived more than 50 years.
But the reality is that at some point a business owner needs to objectively consider the life of the business.
In actual fact you should also be asking how long will you (the business owner) survive?
Even if the business is handed to family or relatives, this still represents a transaction. And whether you give it away or attempt to capture the wealth you have created, it is still the an exit of you from the business.
- Will your business outlive you?
- Do you want it to outlive you?
- What will happen if you just left?
So at some point ALL business owners are faced with only TWO options:
How do you decide the best option for you?
- Shut the business down.
- Sell the business.
This decision needs to be a balance of factors:
- Can the business be sold?
- What is the value of the business?
- How long will a business sale take?
- What are the costs of shutting down the business?
- How much time do you have before you want to leave the business?
- What exit strategies are available and how long will they take?
Despite the high likelihood that a business owner will need to consider an exit from their business, more than 30% of business owners have no succession or retirement plans in place.
Even fewer business owners will have seriously considered who will buy their business or what they are likely to pay for it.
So what are the key differences between these two options? What are the key factors that need to be considered?
Option 1: Shut the business down
There is nothing wrong with this as an option – but if you decide to close the business the strategies to get the most from the process will be very different if you choose to sell.
The returns from the business will come from:
Sometimes parts of the business can be sold off for nominal sums that can help boost the returns from the process.
- Wages paid to the owner during that time.
- Dividends or profits that can be generated.
- Sale of assets before and after closing.
These are not just your physical assets but can also include:
But it is rare to get any sort of asset premium when selling in these circumstances.
- Customer contact lists.
- Customer agreements.
- Designs, trademarks or patents.
The first step is to define the timeline and work out when you will finally close the business. At this point there are three key things to consider:
You may be able to reduce some costs early (such as staff, inventory or promotions) depending on the nature of the business.
- How do you maximise sales prior to closing?
- What costs do you aim to reduce to maximise your benefits over?
- What costs will the closure incur (site or office clean up, signage removal, employee payouts etc)?
What can you expect from shutting down your business?
Contacts us now and we will help you work it out.
Option 2: Sell the business
Most business owners focus on the wages and profits they get whilst they own the business. A minority of business owners (estimates suggest much less than 40%) also count the value of their business in their retirement or exit calculations.
Depending on your circumstances, the sale of your business is the biggest pay day you will get.
Let’s consider two examples:
We can see that the benefit of selling Business #1 is not much more than the annual owners wage – based on the assumptions in the calculation. If the EBITDA margin of Business #1 was 30% then the potential value is $240,000.
Now that is a more attractive business to sell!
It is also easy to see that Business #2 will result in a significant payout to the owner if it sells for a multiple of 2.5x EBITDA. In this case the annual owners wage is of secondary importance.
There are assumptions about the calculation in order to attract the valuation:
Each one of these questions highlights an issue that impacts the final valuation of the business.
- Does the business have an EBITDA margin of 10% or more?
- Will the business attract an EBITDA multiple of approx 2.5x or more?
- Is the owner taking a market-level salary?
- Are there buyers interested in the business?
If you are going to sell your business then there are other issues you need to consider: Each one of these factors will influence the final price.
By adopting a staged approach at answering the key sale-ready questions, a business owner can reduce the uncertainty about their future and put in place realistic plans for succession and retirement.
Do you know:
- If your business is ready for sale?
- What you would get if you shut down the business?
- What price range your business might attract now and after improvement?
What Next?We can remotely assess your business to discover how likely it is your business will sell for the price you need.
Our Sale Ready process will provide you with:
Buying or selling a business is a complex process and it pays to make sure you have all the answers. A business is meant to be an asset that secures your wealth and provides the lifestyle you want.
- Risk profile of your business.
- Indication of the likelihood of achieving a premium price for your business.
- Improvement opportunities that will help increase the value of your business.
- The preparation you need to be ready for a transaction.
So you NEED to be ready for one of the most important transactions of your life.
Do you want to:
Then follow this link to make a free no-obligation enquiry about how we can help you achieve the best outcome.
- Find out the likelihood your business will sell?
- Discover the likelihood your business will attract a premium?
- Find out how prepared you are for a smooth transaction process?