Selling Out

Timing the Sale for Maximum Price

Picking the right time to sell a business can mean the difference between a substantial retirement income and nothing.

Every business will go through four stages of a life cycle. Please see the graph below.

 

The smart time to sell is when the business has completed its growth stage and is beginning to mature. At this point the business will realise its maximum value.

Too many owners try to sell at the decline stage because they haven’t recognized that their business is in decline. Sometimes the decline is due to increased competition in a mature and no longer growth industry. The competition is fierce and the margins low, hence the whole industry is in decline. Sometimes owners lose some of their passion for the business and the business loses its competitiveness. Frequently the owners have not taken the time to devise or implement systems that allow the business to operate without them.

The high growth and early maturity stages are the ones that will bring the highest selling price. Consequently, this is the period we should be in at sales time.

To sell at the appropriate time will require  […]

What Buyers Like and Will Pay More For

 When buying a business, buyers and their representatives (agents,lawyers) create a short list of  a specific set of criteria. Among them are:

More Cash and Less Inventory
Positive Long-term Contracts
Diversified Base of Customers and Suppliers
Solid Capture and Retention of Order Data
An Audit for the Prior Five Years
A Strong Management Team

Not all may apply to your business but probably most do.
More Cash and Less Inventory
Buyers like to see a strong cash position. This comes from smart management of working capital. The seller can increase their cash position by:

Collecting  accounts receivables faster
Clearing inventory that is not moving
Obtaining the most favourable terms for payment from  suppliers

Positive Long-Term Contracts
Long term contracts reduce volatility and uncertainty.Buyers will focus on confirming the sustainability of production. Long-term contracts examples are

long-term supply contracts
leases on valuable land and buildings
leases on production facilities and distribution.

Diagnostic to assess your preparedness for exiting

Diversified Base of Customers and Suppliers
The seller should not be dependent on major customers for a large portion of their sales because customers can put pressure and threaten to withdraw their business.

The opportunity to […]

If Prepared the Sales Price Will Be Higher

Winners and Losers
There may be a large difference in the price obtained between the Losers (owners who continue to manage their business as before), and Winners,(those that consciously prepare it for sale).

 

How To Prepare the Business for Sale
Preparing a business for sale has four components:

Timing the sale during high growth or early maturity period
Managing for cash
Managing for growth
Managing so as to earn a higher multiple of earnings

Timing the sale during high growth or early maturity period
Every business will go through four stages of a life cycle. Please see the graph below.

The smart time to sell is when the business has completed its growth stage and is beginning to mature. At this point the business will realise its maximum value.

Too many owners try to sell at the decline stage because they haven’t recognized that their business is in decline. Sometimes the decline is due to increased competition in a mature and no longer growth industry. The competition is fierce and the margins low, hence the whole industry is in decline. Sometimes owners lose some of their passion for the business and […]

How to Obtain a High Sales Price for Your Business

A business should do more than provide the owner with a livelihood. In addition to fulfilling the owner’s passion it needs to achieve such value that the owner can sell it at exit time for a price that reflects the time and effort invested. After putting in 20, 30 or 40 years the business should be sold for enough to provide a comfortable retirement for the exiting owner. If not, then all the business did was to provide the owner with a job. Building a business should factor in an exit plan and converting into cash the value built up over the years.

At exit time because of age, lifestyle changes, and financial needs, business owners want to realize the value locked up in their business. Too often the offers they receive do not meet their expectations. This is a situation that could have been avoided.

The investment made in building a business over a generation is frequently several million dollars, and too often it cannot be sold quickly. So, to arrange for a quick sale, and to obtain a fair price much preparation should have […]

Why There’s a Need for an Exit Strategy

Eventually all business owners will need to exit their business.

Reasons may vary but they revolve around the following factors:

Retirement because of age
Health problems of the owner or their family
A change in circumstances impacting family finances
Unexpected family issues
Change of interests and no longer passionate about the business
An unexpected offer
Pursuit of new venture
Need to raise money
Desire to spend more time with family or take care of a loved ones
Death of owner/financial difficulties
Desire for liquidity and asset diversification on the part of the primary shareholder
Competitive pressures. Unable or unwilling to compete.

 

Having established that exiting is unavoidable, the wise business owner will create an exit strategy while still many years away from departure and will run their business with the view of securing the best possible price when that time comes.

Find out how to obtain the best possible sales price for your business.

 

By |January 18th, 2018|Exiting|0 Comments|