You’ve built your business from the ground up, and you’re immensely proud of what you’ve created. So it makes sense that when the time comes to sell, you expect the sale price to reflect all of the hard work you’ve put in over the years.
Unfortunately, no matter how much you have achieved, or how many hours you have clocked working diligently towards success, none of it will mean a thing when you come to sell your business unless you have a succession plan. We know it sounds harsh, but as you know, the business climate can be harsh. If you want your business value to reflect your expected sale price, you need to plan. And well ahead of time. In this article, we examine what factors affect your business value, the state of the current buyer environment, and how you can prepare for the sale of your business.
Factors that can affect your business value
Many factors can affect your business value, which, in turn, impacts the price that it is sold for. Being aware of these scenarios is critical, as it will assist you to avoid making mistakes which will lead to an undesirable outcome for your business valuation.
Be sure not to:
Become complacent when considering stepping away from your business. It’s easy to put off choosing a successor or developing an exit strategy as it seems a long way off. But the time for action can creep up sooner than you anticipated, and you don’t want to be caught off guard. Delegate a few hours every week towards working on your succession plan and don’t let other pressing matters place it on the backburner.
Be ignorant regarding your options for business succession. There are several ways that you may be able to transfer the ownership of your business, including passing your legacy onto a family member or selling your shares to a co-owner. You could also sell your business to a trusted and interested employee or an outside party. Discuss your options with your accountant and business advisor to determine which direction is best for yourself, the company and the final sale price.
The buyer environment: what has changed
It’s also important to note that the buyer environment may have changed quite dramatically since you purchased or initiated your business. And that the buyers themselves have also changed. Today, houses cost more, business entry costs are higher, funding opportunities are limited, and the market is flooded with competition. Taking over a business is not only extremely expensive, but it’s also a huge risk for younger generations. Furthermore, it’s no secret that Millennials are more likely to switch jobs than Baby Boomers and even Gen X-ers. This is largely due to the fact that they deliberately seek meaning in their work; many are not satisfied working just for the sake of bringing home a paycheck. Professional growth is an expectation, and this doesn’t always mean management or leadership, either. Many Millennials are happy to progress their careers without transitioning into management roles. As you can deduce, finding a successor or a buyer for your company in the current business climate can be difficult.
Preparing for a challenging sale: the importance of succession planning
Because of the difficulties outlined above, it’s essential that you prepare for a challenging sale. It isn’t set in stone that the process of selling your business will be arduous. But it’s vital that you have a plan if it does end up being a lengthy process. Let’s look at what we know:
- Many business owners from the Baby Boomer generation are starting to retire, meaning plenty of businesses are coming up for sale. This results in lower prices.
- Due to the risks involved with starting or buying a business and the personal priorities of Millennials, there are less qualified buyers. This makes it a buyers market.
- When it’s a buyers market, people can afford to be picky. Many millennial buyers may be value-driven and expect more when purchasing a business. So it’s vital that your business is a notch above the rest.
How do you outshine competitor businesses up for sale, and hook the best buyers? By being proactive about increasing your business value, which can be achieved by generating a strategic and thorough succession plan.
Want to know more about how to increase your business value by implementing a strong succession plan? Contact Toohey Reid today!
General Advice Disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
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