The options
The aging process cannot be stopped. Accepting this is very difficult for a lot of business owners who have been the centre of their business and derive enjoyment from their working environment. People notice a physical deterioration of their body or notice people of a similar age having health issues. What is more difficult to notice is that their mental capacity is also slowing down and their focus may get deflected. SME’s differ from larger businesses, as the leadership does not change frequently, if at all, and succession planning does not occur regularly.
So, what are the options for a business owner?
1) Wind the business up and sell the assets
2) Sell to a third party
3) Pass the business onto suitable members of staff
4) Pass the business on to family
Overview
Assuming, winding up and selling the assets fails to achieve the cash needed to fund the exit then the next five steps are an overall guide for business owners planning to escape their business.
1) Have a think about what you will do when you retire. The days take a lot of filling and you need to have a purpose. Draw up a wish list of things you would like to do, then try and double it. It has got to be something to look forward to and not dread.
2) Get a personal financial plan from a financial planner. They will look at your financial position holistically and effectively do a “cash flow through retirement” for you.
3) Plan how you will get out of the owners’ trap. That is where you are the centre of the key activities in the business. A sign that you are in the trap is if you are not taking holidays, or if you do, the business has slowed up while you are away.
4) Get the business valued so it’s worth can be added to your other investments. Start this early, as if you need to make changes to maximise the valuation, it will take time. The valuation can then be added into your personal financial plan.
5) Find a buyer and work out the financial transition to whoever is taking over and formalise this with help from a lawyer.
The sale process
It can take up to 5 years to prepare a business for sale, find a buyer, do the due diligence and a handover period applied where the owner works in the business for one or two years. To achieve the best price the owner must be flexible as all buyers are different. However, in addition to the critical factor of the owner not being central to all activities, it has been shown that there are several other factors which significantly impact upon the price.
The main factors are:
1) Are the accounts up to date and reliable?
2) What is the growth potential? i.e. how easy is to scale the business
3) What the risks are if a key staff member, supplier or client were removed?
4) How healthy is the cash flow?
5) Are revenues reoccurring or do they keep having to be secured?
6) Is the product or service sufficiently differentiated, so it has a defined market?
7) What is the customer satisfaction level, will they return or recommend?
So, whether you want to sell or pass your business on now or at some time in the future it makes sense to start preparing now, the added benefit is that you will be adding value anyway.
Next Steps
I’d be happy to have a confidential, no obligation discussion about how I may help you plan your exit from your business and how I might help you appoint the most appropriate professionals throughout the process.
For more information, see website www.ba4cs.co.uk
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Peter.Searle@ba4cs.co.uk