Value Adding News - November 2009Welcome to Maxell Consulting's newsletter - Value Adding News.
The newsletter is designed to help businesses increase their value, make their business more attractive or have greater confidence about the decisions they are making about the future of their business.
In this month's issue
When should you sell your business?
With some tentative signs that the economy is improving, many people are now starting to look at buying a business, hoping to snare a bargain. In a recent survey we conducted we found over 30% of business owners have had an offer made on their business.
So is now the best time to sell or should you hold on hoping for better times and perhaps a better offer?
There are three key factors that impact when a business owner should sell their business:
The value of a business will be related to the current value of future cash flows, so the time to sell is when you can demonstrate to a buyer with some level of certainty that you have a stable or growing cash flow.
- Personal preference and situation – do you want to continue in the business or is their a specific reason you need to exit?
- A ready and capable buyer – its great to have people who “express and interest” but a buyer is someone who is not only ready to do the deal but has the capability of paying.
- Secure future cash flow.
Some of the key trends that will help increase the price a buyer is prepared to pay include:
Often new market trends will emerge, but will take some time before they impact the sales and profits of a business. Don’t try to sell a business on the “hope of future customers” – a buyer will simply ignore anything that cannot be justified or proven.
- Steady or growing cash flow (not just profits).
- Increasing sale trends – even increases in particular market segments or product lines can be attractive to a buyer. Make sure your accounting system can report on the trends of growing market segments easily.
- New legislation that has been passed or government reform that opens up new markets and opportunities for the buyer to increase cash flow.
- New technology that has been successfully implemented in the business or technically proven, that gives the business a competitive advantage in reducing costs or securing new markets or both.
- Documented systems in place that manage the customer interaction and sales process (such as marketing communications, sales processes, lead management and sales reporting).
In some circumstances personal, family or health reasons will take priority and often dictate when you leave the business. These are typically unplanned exit events, and the best strategy is to have a well documented succession plan in place.
The timing of a business sale will also depend on your personal taxation circumstances, as many things can ultimately impact the dollars that end up in your pocket. You will have need specific advice from a financial planner or taxation accountant to indicate what money you will end up with.
The best way to know when to sell is to be prepared – have some indication of what your business may be worth before someone approaches you. That way you stay in control of the process and you have more likelihood of getting what you want.
In many cases a simple 1 hour phone call will give you the preparation you need to respond to an offer on your business.
Follow this link to find out more about our Your Value Now process.
Scammers targetting small business - audio interview with Dr Michael Schaper from ACCCScammers might be trying to target your business right now. Dr Michael Schaper, deputy chairman of the Australian Competition & Consumer Commission, says scammers are targeting small business because they're an easy target.
Are you aware of the latest scams? In this interview with Michael Schildberger of Business Essentials, Dr Schaper explains the most common scams such as over-payment, false billing and computer "phishing" - and how they operate.
Most importantly, he explains how to reduce the risk of your business being scammed.
To listen to the full interview click here
Six lessons about succession planning business owners can learn from Myer
The latest article in our library looks at the lessons that small business owners can learn from the recent Myer "relisting" on the stock exchange.
Over the past three years Myer has been steadfast and deliberate in developing and implementing a plan that saw the private equity owners turn $1.4 billion into $2.2 billion. Some of the key lessons that can be learnt from their journey include:
So how good is your succession plan? Does it outline how you will leave the business and how you will realise the wealth you have created? Is your business plan part of your succession plan? Do you feel comfortable that you have covered all the bases and protected the value of your business so it ends up in your pocket and not sold off as a “cheap buy”?
- Identify your exit options early: Myer has shown that an effective exit strategy took three years in the making, and this is no different for a small privately-held business. Start now and reap the rewards later.
- Document your succession plans: Getting your plans down on paper may seem less important, but it does ensure you do the right things at the right time. It’s all about proactively managing the wealth you have created in your business.
- Distinguish your business plan from your succession plan: The business plan focuses on the actions you need to take to grow the business. The succession plan focuses on the actions you need to take protect and realise the wealth your business plan has created.
- Continually examine the risks: Identify the potential risks to your business and what impact they would have on the value of your business. Always have secondary plans in place to deal with the risks should they occur. A good risk management assessment should be part of any succession plan.
- Invest in your people and business systems: Make sure your people, especially key management staff, stay with the business. Effective systems will help retain good staff and add value to your business.
- Deliver, deliver, deliver! A buyer will feel comfortable that your business will run without you if they can see results have been delivered in the past. It helps reduce the unknown factor in buying a business – will the business survive without the owner?
If you want to discuss your succession strategies or look at developing a succession plan, contact us for a free confidential discussion over the phone.
To read the complete article follow this link.
Client Case Study: Using business value to make decisions
- The client operated a local magazine publishing business that had seen early growth but sales had flattened over the past two years.
- With a reducing market for advertising and difficult people issues to manage the directors wanted to sell the business.
- They had been made an offer for the business by one of their employees.
- Educate the owners on the current and future value of the business and advise on the next steps.
Using the “SaleReady” process and tools we helped the business owner understand the value range for the business and the key features that would be attractive to other buyers. We also looked at the current management and marketing issues within the business and developed alternative strategies that could address them and deliver some growth to the business.
After some analysis and a single workshop the directors concluded:
The directors decided to reject the employee offer and put in place a set of strategies to increase the value of the business and target a potential buyer within two years.
- The price offered by the employee significantly undervalued the business.
- An attractive price could be achieved by developing strategic relationships with other buyers.
- With some small investment in time and dollars, the business could deliver reasonable growth that would at least double the price of the business.
Maxell Consulting has often found business owners decide to hold onto the business and change their business plan rather than sell for a price that is much lower than what they thought the business was worth.
Contact Maxell Consulting to discuss how your business would benefit from the SaleReady process and getting your business prepared to sell for the price you want.
Next Month's Newsletter
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