External areas
When it comes to external areas, the question to ask is, “what do we need to prepare to attract the right buyer (who will pay more)?”
Having bought and sold a number of businesses over the last 15 years, there are several factors that stand out to me when answering this question:
1 Strategic buyer
For every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers. The most common example of this is buyers with complementary products and services.
2 Information memorandum (IM) document
It is amazing to see the number of businesses, which are otherwise quite valuable, whose owners are prepared to sell up on the basis of a cheap, home-made flyer-style document. A well-prepared IM will be able to attract and convince the right buyer.
3 Tax planning
Every exit has several different elements of taxation. Inadequate planning in this area can cost you a large percentage of the sale price in taxation.
4 Due diligence and documentation
Many transactions fall over at this point, but this can actually be used to assist in improving the value of the business. If all of your documentation is complete, accurate, up to date and demonstrates a well-managed business, it will support your value proposition, not detract from it.
5 Negotiation
Being in a position to create some competitive tension by attracting several of the right buyers is a good start, but the conduct of the negotiations and discussions leading to the actual sale is a very important aspect of the process.
6 Legal agreements
Often business owners are concerned that legal agreements will scare off the buyer, but this is very rarely the case. Far more importantly, legal agreements need to be structured to protect you after the sale – particularly around the key issues of any warranties, assurances provided, and also any event or finance included as part of the sale terms.
7 Corporate advisors
Business owners should not try to sell without the best advice. Well-represented businesses are generally taken far more seriously and are perceived to be far more valuable than those without representation.
A corporate advisor who has a reputation for selling good-quality businesses automatically positions your business in that category. Importantly, post-exit, you also need assistance with asset protection, estate planning and ongoing investment planning. The change from business owner to self-funded retiree is substantial.
Key outcomes
The correct implementation of the items outlined above will achieve two key outcomes: maximize the value of the business and successfully extract that value upon exit.
Craig West is the president of the Australian chapter of the Exit Planning Institute. He is a strategic accountant who has over 20 years’ experience in advising business owners. His practice, Succession Plus, provides mentoring, advice and strategy for clients looking to prepare their business for a successful exit. He is currently working on a PhD in Business Succession and Exit Planning. Visit successionplus.com.au for more information.
