As a business owner, when it comes time to plan your retirement, the sale of your business may loom large as a daunting challenge. It’s likely to be the single most important financial event in your life.
It’s like nothing you’ve encountered before and it’s difficult to know where to start. The proceeds of the sale will be dedicated to funding your post-exit lifestyle, and so the marketability of the business is obviously a major factor to address.
Properly preparing the business to obtain the best possible price and terms of sale will generally take more time than you might think, possibly three or more years. Rushing the process, and going to market prematurely is certain to have negative consequences. So it’s advisable to be realistic about what lies ahead.
Potential buyers will be attracted to businesses that demonstrate the ability to generate solid returns for the owner. Naturally, they will favour healthy businesses with a history of strong profitability, cash flow and growth. Does that describe your business? If not, you undoubtedly have opportunities to make some improvements that will result in a higher price and better terms. Here are some tips to consider:
- THINK LIKE A BUYER. As a general guide, try to place yourself in the shoes of the future owner. If you were buying a business, consider what would influence your investment decision and make the necessary changes that address those issues. For example, do your employees and facilities present a professional image that illustrates the pride you take in the business? What will your customers say about the quality of your products or services?
- ADOPT GOOD MANAGEMENT PRACTICES. You can expect that serious buyers will want to conduct extensive due diligence on the business. They will analyse financial statements, management reports, inventory records, accounts payable, accounts receivable, and so on. They will also want to know that good management practices and policies are in place so that the business can survive and thrive without you. If you don’t have ISO or another relevant quality standard certification, this would be good time to introduce one.
- REFRESH THE TEAM. This is a good time to assess your employees, including management. Address any persistent performance issues, provide additional training and professional development where necessary, and introduce good retention practices to ensure your best employees remain loyal. Engage the team in developing best practices for the business.
- CUT COSTS. Look for ways to increase efficiencies, cut waste and reduce unnecessary expenses. This will improve profitability and cash flow, enhancing the value of the business. Dispose of surplus assets and use the funds to reduce debt or purchase new equipment.
- HAVE A GROWTH PLAN. Business owners looking to retire have a tendency to slow down, be less aggressive expanding sales and entering new markets. They will delay maintenance on equipment and investment in new technologies. However, buyers will give preference to companies that have opportunities to grow, and the capacity to follow through. So now is not the time to be taking your foot off the gas. Prepare a strategic plan, or update your existing one, so that it demonstrates to a potential buyer how the business will continue to grow over the next three to five years and beyond.
- ENJOY THE RIDE! Don’t lose sight of the fact this is the time in your life to reap the rewards of your many years of hard work, and move on to the next adventure. Being well prepared will put you in control of the process and reduce the stress that comes with any change. Enjoy the moment!
Ian MacFadden is co-founder and Partner of exitRITE Planning Services. His column appears the first Friday of each month. You can reach Ian at [email protected] or go to www.exitrite.com
