Maximising Your Exit Value: The Essential Guide for Australian Business Owners
Maximising Your Exit Value: The Essential Guide for Australian Business Owners
In the dynamic landscape of business sales, preparing your business for sale is not just a step towards changing ownership; it’s a strategic move to ensure you maximise your exit value to provide you with funds for retirement or your next venture. As a seasoned business broker with MMJ in the Illawarra region, I’ve witnessed firsthand how critical preparation is to achieve a successful and profitable business sale. This article will delve into three key areas that every business owner must address to ensure their business is primed for a premium sale price, illustrated with appropriate case studies.
1. Financial Transparency and Readiness
The cornerstone of any business sale is the strength and clarity of its financials. Post-Covid, we’ve seen a significant shift in the scrutiny level from buyers, their accountants, and lenders regarding current financial performance. It’s imperative that business sellers ensure their financial records are up-to-date and all unusual variations are fully explained. Your accountant should be in the loop about your intent to sell, ready to respond promptly to queries about profit & loss statements, cash flow, and asset registers.
Case Study: Food Manufacturing Business
A successful manufacturing business in Illawarra, with revenue close to $5 million p.a., faced a delay in a major project, severely impacting its revenue and profit for the final quarter of the financial year. Despite keen interest from potential buyers, the seller’s accountant’s delayed response (three weeks) to provide detailed explanations and an accurate asset register led to buyers diverting their attention to other opportunities. This case underscores the importance of financial preparedness and the potential consequences of delays in information provision.
2. Lease Security and Duration
The term and security of your business’s lease can significantly influence its saleability and the price a buyer is willing to pay. Buyers typically seek a minimum of five years on a lease to ensure an adequate return on their investment. For businesses in locations critical due to council approvals, such as childcare centres or commercial laundries, the expectation can be as high as 20 years of lease options. Relying on personal relationships with landlords and operating on a month-to-month lease can be risky and potentially devalue your business.
Case Study: Waste Disposal Business
A waste disposal business, operating on a month-to-month lease for a number of years, found a perfect buyer after being brought to market. However, the deal hit a snag when the buyer’s request for a 5-year lease was met with disinterest from the landlord. The sale proceeded but at a substantial discount, highlighting the critical nature of lease security in the valuation of a business.
3. Reducing Owner Dependence
A business overly dependent on its current owner is a significant red flag for buyers. The ideal scenario is a business running under management, but strategies such as outsourcing, delegating, promoting existing employees, and hiring to fill the owner’s roles can also enhance appeal to a broader spectrum of buyers, potentially increasing the sale price.
Case Study: Engineering Business
An engineering firm initially with an appraised fair market price under $1 million struggled to attract buyers due to the owner’s heavy involvement (60+ hours a week) and the absence of a backup manager. By stepping back, promoting a younger employee to manager, and hiring a replacement, the owner successfully transitioned to a part-time role. The business could then relist a considerably higher price, attracting multiple inquiries and selling close to the asking price in less than three months.
Summary
Engaging with a knowledgeable business broker, like those in the MMJ Business Sales team, is crucial in navigating the complexities of preparing your business for sale. Starting with an appraisal to determine your business’s current market value is a wise first step. Addressing financial readiness, ensuring lease security, and reducing owner dependence are pivotal strategies to enhance your business’s appeal and maximise your exit value.
The journey to a successful business sale is paved with detailed preparation and strategic positioning. By focusing on these key areas, you can significantly improve your chances of a profitable and timely sale, ensuring that your hard work and dedication translate into the exit value you deserve.
Tags: business owner small business tips illawara
About the author
Justin Bunt
Business Broker
Justin joined the MMJ Business Sales team in 2020 as a Business Sales Consultant. He brings a history of business ownership including multiple star ...
