Business Succession and Exit Planning

Business Succession and Exit Planning

How to sell any business for maximum value


Having worked with clients over the last 10 years, in selling businesses, making acquisitions and undertaking due diligence for buyers - it is very clear that there are several key things business owners can do to help them maximise the value of the business and achieve a successful exit.


Firstly, you must begin with the end in mind -  Steve Covey’s second habit in The seven habits of highly effective people- “If you want to have a successful enterprise, you clearly define what you’re trying to accomplish… the extent to which you begin with the end in mind often determines whether or not you are able to create a successful enterprise.”


In practical terms this simply means business owners must take a strategic approach to their exit -  we will all exit our business as owners at some point – the significant choice is whether you simply allow that to happen to you or whether you plan, manage and co-ordinate a strategic exit and therefore maximise value. With this in mind the key message is - you cannot start too early and importantly, you need to remember that many of the decisions you make today need to work you and the business closer to a strategic exit.


There are several key things which simply make some businesses more valuable than others -  for example in the social media industry large dollars are being paid to acquire a competitor’s data base or client / membership list.  In financial services, passive recurring income is highly valued - businesses which have an ongoing and recurring revenue source are always more valuable and will always obtain a higher price upon exit.


Is there an element of your business which could take advantage of one of these strategic value drivers?


In the same way, creation and documentation of valuable and unique intellectual property will also add significant value -  but only on the basis that it can be replicated successfully by someone else - there is no value in IP that is only useful to you personally.


And that highlights probably the largest detractor of value – key person dependence -  many businesses would suffer some really severe consequences if the owner was suddenly unable to work for three weeks -  and this simply indicates that the business is key person dependent and therefore very difficult to sell. Perhaps the key person in your business is the main sales generator or perhaps the principal “ technician”-  if that is the case you must spend time and effort as soon as possible systemising your business and documenting policies and procedures to reduce this key person dependence.


Often employees are a significant risk and therefore also detract from value -  Does your business have an incentive plan designed to attract, retain and motivate key employees and incentivise them based on achieving strategic business outcomes designed to improve performance and increase value?  Are all of your employees ”measured”  in terms of key performance indicators which directly match real business outcomes?


If you really wish to drive performance and encourage your people to think and act like business owners it is well worth considering an employee share ownership plan –ESOP -  which firstly, reduces the risk of those key people leaving and secondly, encourages improved performance.  The federal government improve the legislation in this area during 2016 to encourage small and medium business owners to implement an employee share ownership plan for employees -  by both reducing the risk for the buyer (that is that your employees will leave) and also improving the performance of the business - this will certainly increase value.


Sales and marketing is yet another area which is often not considered important as part of the preparation for selling your business, but from a buyers perspective it is absolutely vital that you are able to demonstrate a systematic approach to generating new leads and sales. If the business simply relies on the network and sales skill of the owner this is high-risk for the buyer and will reduce value -  if on the other hand you had a highly systemised and automated sales and marketing process which generated regular new leads this will be highly valued by any buyer.


The final area to consider in preparing a business succession of exit plan is you (the owner) and your personal financial strategy -  do you have the correct structures in place to protect your assets, minimise taxation and fund your retirement post sale?  Importantly, given that average life expectancy is increasing and we can expect to be retired for at least 15 to 20 years then you also need to consider what you are going to actually do,  life after business is very rarely planned for properly.


As you can clearly see there are many areas which need to be prepared strategically to make sure you are able to maximise the value of your business and achieve a successful exit.



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