Mark Bouris: Business owners need to be sale-ready
IF your business is your retirement plan, it’s time for the truth: 9.5 per cent of businesses are either for sale or want to be, which is around 200,000 businesses, Mark Bouris writes.
Business
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IT’S a crowded field as Baby Boomers attempt to realise the value of their business equity and move into retirement.
But selling a business is not fair.
Some owners sell quickly for the top valuation while others won’t get the price they want.
The difference is that successful owners start with the end — the exit.
They build a “sale-ready” business which operates at the best earnings-multiple valuation and they create value.
The others are all about income and when they want to retire or move on, they can’t get the price they want.
You must be sale-ready — here’s how you do it:
OWNER NOT NEEDED
“Sale-ready” means your business doesn’t need you in it. Buyers want a “turnkey” business.
DOCUMENTED
A “turnkey” business means a new owner can walk in and operate it because there are manuals for the systems and processes.
As a bonus, you create a stronger business by documenting it for a buyer.
MARKETING
Ensure your marketing has a documented cost-benefit, and the right mix of digital and traditional channels.
Top-dollar buyers are purchasing a marketing machine — they don’t want the risk of building one for themselves.
FINANCIALS/LEGALS
Regular, high-quality financials are not only essential for being sale-ready, they create a more efficient business.
You also need legal documentation that clarifies IP or property ownership issues.
TALENT
If you have an edge in sales or production etc. a buyer will want to know who drives that performance.
To be sale-ready you have to “lock-in” the talent with an incentive plan that includes salary, bonuses and promotion.
REVENUE MODEL
Anyone can show a year of good revenues. To be sale-ready, you have to show your documented system for recurring revenues. The new owner wants a revenue model.
BACK OFFICE
Avoid out-of-date software and too many manual functions.
A buyer doesn’t want a business that might have surprises such as staff entitlements that aren’t recorded, or finances misstated because of old systems.
Have an up-to-date back office.
TIMING
Exiting your business without preparation can be painful and stressful. Sometimes the timing is out of your control through a divorce or a health problem. So, instead of trying to control the timing, control the quality of the business.
ADVICE
To get the best price for your business, seek good advice. Selling a business is not like real estate — you don’t put it on the market and wait. You need advisers to support the sale, and a mentor with exit planning experience will make a huge difference.
Finally, don’t be scared of the truth: to build a business that sells for a great price, you must establish systems that produce recognisable value to a buyer. Your business has to be sale-ready, and to do that you have to begin with the end in mind.
* Ask Mark at mentored.com.au