Practical articles to help small business owners when selling and buying small businesses.

Is your business your superannuation? 6 key steps to make sure you can retire.

Michael Kerr - Friday, October 04, 2019

Are you relying on the sale of your business to fund your retirement or pay off debt?

And are you planning to retire anytime in the next 5 years?

If the answer is yes to both then you have 2 things to focus on right now.

  • Dollars, and how to  ensure I sell the business and end up, after all the adjustments e.g. tax, with enough ‘in my pocket’ to fund my retirement, and/or pay off debt, AND
  • Time, and to ensure I allow enough time to plan and complete the sale so I have time to enjoy my retirement.

  • If you are running on the assumption, or getting advice, that selling your business is an all up 6 to 12 month process then you are wrong.

    If you haven’t got an up to date assessment of the likely selling value of your business from a credible adviser, and not just someone who will tell you what you want to hear to get the listing to sell your business, then you are probably in for a very big wakeup call.

    There are at least 3 major forces at work that will make it much harder for owners to sell their business at the price where they can fund their retirement and in a timeframe that allows time after the sale to enjoy their retirement; 

  • The increasing average age of business owners (the ‘baby boomer’ phenomenon) means the number of businesses to be sold (not necessarily advertised though) will increase dramatically in the coming years,
  • The low rate exit or business sale planning means less businesses are properly ‘sale ready’, 
  • The challenges in borrowing money to buy businesses means less potential buyers.

  • If it isn’t a buyers market already it certainly will be in years to come. To some extent it is an ‘early bird get’s the worm’ situation.

    So again if you are relying on the proceeds from the sale of your business to fund your retirement or pay off debt and you are planning to retire within 5 years then you need to start  your preparation and planning now. And you need to consider the time and money you spend on preparing and planning as an investment to ensure you have a well-funded and long retirement. 

    Planning for sale and preparing the business needs some expert guidance. We do help owners and can help whether you have 5 years or 3 months. So please make contact to discuss.

    For you to think about in the meantime here are 6 key parts in an effective business sale planning process that and your adviser would need to undertake.

    1. Working out business sale value.

    For just about all businesses the historical tax returns don’t tell the full story about what the business actually makes.  When you are selling you need to go through a process which is about ‘restating’ what the business ‘actually’ made. 
    This process is often referred to as normalising or adjusting the business financials. 
    It enables a potential buyer to quickly easily understand what return they can expect and therefore what value they will put on your business. So it’s critically important to get this right and should be done by experienced adviser. When done well you can summarise the complete financial history in a 1-2 page summary.

    2. Working out a business continuity plan. 

    A major concern for most buyers is 'what happens to the business when the current owner isn't there anymore?'
    So you need to come up with a plan to ensure the business;
  • Doesn’t fall apart when you leave,
  • Can be transferred and easily sustained or even grown under new ownership.
  • 3. Making sure you can transfer key business assets.

    You need to ensure that key business assets like premises lease, supplier agreements, staff, Intellectual Property can be easily transferred.

    4. Developing a communication plan.

    There are lot of people who will be part of or impacted by your selling your business. These people include staff, suppliers, customers and your 'nearest & dearest'. It’s always far better that you make these stakeholders aware of your plans to sell, rather than them finding out ‘third hand’, and that you release the right level of information at the right time.

    5. Pull together your business sale team.

    In any business sale you will most likely need an Accountant, a Lawyer, a business sale adviser and other experts. You need to make sure they have up to date experience.  And this may not be your current Accountant or Lawyer.Picking the right team will have a huge influence on whether complete the  business sale on your terms and in your timeframe.

    6. Ensure you have a clear, post-business plan.

    The sale process always has some bumps and having a plan for life after business can help you through the hard times.

    In summary the longer you allow for planning and selling the better off you will be;

    • Ideally you would allow up to 5 years for both planning and selling,
    • With 2 - 3 years you can prepare well and allow time for to implement at least some of meaningful business improvement strategies to be realised. Within this timeframe the sale process can still be run without any obvious hint of urgency or desperation. Anything less than 2 – 3 years can start to look ‘under-prepared’ to a savvy buyer.
    Within the above timeframes the selling part of the process, starting when the initial planning is completed, can be anywhere between 6 months and 24 months. 

    If you are reading this and feeling dejected because the reality is you only have a few months then please don’t give up. You can always achieve something to make the business easier to sell with as little as a few months planning.

    Gone are the days when having decided it’s time to retire you could simply put your business on the market and wait for a buyer to call.

    The market dynamics are very much in favour of buyers. 

    Most of you owners will only ever sell one business. The implications for getting it wrong are costly.

    Properly preparing you and your business is now a mandatory investment of time and money that you need to make in order to secure a sale on your terms and in your timeframe. 

    Good planning should and will stretch you but if you start early enough it is manageable. 

    The longer you leave the harder it gets to start. 

    Not only would that mean a lower financial return, it will also drain you emotionally (knowing you should have started earlier) and distract you from getting to where you want to be post business.
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