Releasing the value locked up in your business is central to any entrepreneur’s retirement plan. A sale of the business is the obvious way to unlock that wealth. But selling your business is stressful and time consuming even in good times. The last two years have been far from good and the next year or so won’t be much easier. Banks have dramatically reduced their lending to potential buyers and those with available cash are being super-cautious and looking for bargains. As a result, selling opportunities are fewer and more fraught.
But there are still healthy exit opportunities for business owners who plan ahead and understand all the options available to them. Plans need to be made early enough to make the business “sale-able” at the best price. There are also alternatives that can be as attractive, perhaps more attractive, than an outright trade sale.
Making your business sale-able
- Plan the work and work the plan – its important to decide the basics well in advance e.g how much do I want or need? by when? is that achievable and what do I need to be doing to achieve it? Am I prepared to work for the business after sale and for how long? What is the most tax effective sale structure?
- Fit and lean – sell any surplus assets as good businesses are sold on a multiple of profits and not assets. Make sure working capital is tightly controlled. Nurture key customer relationships and understand which of your customers are the most profitable and why. Ditch the loss makers!
- Location, Location – are you location sensitive or insensitive? If location is a key success factor ensure you have as long a lease as possible (or invest in the freehold). If location doesn’t matter much then the flexibility of a short lease may appeal to a buyer.
- Dressed for success – ensure all key contracts are properly documented, employment contracts are in place (including reasonable non-competition covenants) and any trademarks or patents are secured
- Be valuable but replaceable – a frequent barrier to sale for Owner Managers and entrepreneurs is that the business is overly dependent on them. Look to build a management structure that allows you to step away when the time comes.
Other strategies for troubled times
Company Own Share Purchase – if the company has sufficient distributable profits it can be the buyer of your shares which can underpin an exit over time
Seller financed sale – if a buyer can’t find the funds then maybe the seller can help? This is particularly useful in passing ownership to existing management or the next generation. There are a number of approaches here, all needing careful thought and proper documentation to protect all sides.
Successfully unlocking wealth in your business in the next two years will require careful planning and a flexible approach. Putting together a trusted team of lawyers and accountants at least 6 months in advance will help you create and implement your plans to maximum effect.
