Your Business is an Asset; it Needs an Exit Strategy!
Your Business is an Asset; it Needs an Exit Strategy!
When Shweta Tripathi came to Australia over 16 years ago from India, the idea of becoming a business broker wasn’t in her mind. Born and raised in metropolitan New Dehli, where she worked for a large multinational company General Electric, Shweta packed her bags and set off on her next life adventure.
“I literally came [to Australia] with two bags and a few thousand dollars in the bank and a job that I had left, a very nice corporate trainer position at one of the largest companies in the world. I had a really good career that was going for me but decided to have a sea change and live overseas.”
Journey to Becoming a Business Broker
With a bachelor's degree in commerce and many years of experience in business, after arriving in Australia, Shweta started working at Optus in small business sales before moving into IT sales.
“I had a business development role for an IT reseller, a company that sold architectural software, and did that for a while, which was really interesting. I’m a good learner, so I picked it up really quickly and assimilated myself in the company really well.” Shweta said, as this was in part due to her experience at General Electrical.
“About 10 years ago, my partner at the time and I looked at buying a business. We looked at Melbourne because I wanted to live in a bigger city because I came from a big city, but we settled in Adelaide”
The first business Shweta actually owned and ran in Australia was a KFC store in Adelaide; it was running and working in this business that Shweta truly realised that she has a “good brain for business”.
“When we were looking at getting lending for the business, I did the cashflow projections and the business plans for that business to be presented to the bank. I realised I’ve got a natural instinct toward business and understanding the valuation of businesses.”
This is when Shweta moved into the business broking space, originally starting as a franchisee with a business broking franchise group. With no experience in selling small businesses, Shweta exceeded her expectations in her first year as a broker.
“I’ve got an accounting background and I started off as a franchisee first. I just had a thought that I might be able to do this given my love for numbers and didn’t think I would make any money but I had a great turnout in the first year which surprised the hell out of myself and it kept growing second third fourth year.”
Establishing Her Brand
After four years, Shweta decided to quit the franchise system and try to go independent.
“I wanted to see if I could go independent, see if I could get any traction in the market and once again really surprised myself. I started the brand Accelerate, I came up with the name and logo and everything else. I just told people around me, ‘this is what I’m doing,’ and if they still want to go ahead and list with me.”
“Over time, I realised I have this knack for building businesses from scratch, and I like doing that. Different moving parts, bringing them together and building a brand. I also have a really good understanding of how small businesses work in Australia. So because of that, I can present a business really well, and generally, I find I’m really good with people. I have a very sound understanding of how human psychology works, how behaviour patterns work, what people look for, so I understand the keywords that people are using,” Shweta said.
In terms of her approach to broking, Shweta describes it as more of a consulting role, demonstrating her thorough understanding of the numbers and how business works in order to match people with businesses.
“I realise, sometimes what you have to do to sell a business is that you have to really simplify it and present it in a way that people will absorb it. For instance, if you have a palliative care business, that doesn’t require a skillset as such, all it needs is someone who understands how business works, and they want to sell it, but they can’t sell it based on a profit or loss statement, it’s my ability to transform that business into a readable document or presentation that can be absorbed by just about anybody.
It’s Shweta’s ability to translate complex businesses with multiple moving parts into a simple easy to understand product that makes her such an effective broker.
“I think when people come to me and say ‘we’re looking at a business and we want to work for ourselves’, half of the time they don’t know what they want, and you’ve got to present it in a way that they can understand. Say, this person is not looking for a cafe and doesn’t know how to cook, but can probably interact with customers. Realistically, if you can fill that role, you can actually run a cafe! So it’s a small, easy example, but really it’s about matching people with the right kind of business.”
“I love broking, I’m really passionate about it, it’s really served me well. It gives me a good life balance, I have kids, and I just love business. I love to see people build things from scratch. Sometimes it’s just an idea somebody has had at home that has turned into million dollars of turnover. it’s fascinating what the mind can achieve.” Shweta said.
View on Exit Strategies
Shweta speaks at information sessions hosted by the small business commissioner in South Australia every year, where she frequently speaks about the value of a business having an exit strategy.
“I always emphasise the fact that if you want to sell your business at the right price, you need to plan your exit. So when someone uses the word ‘exit strategy’ I know that I will be able to get the right price/value for that business.”
“A lot of accountants attend my sessions and I believe that is a bit of a loophole in that industry, where they don’t talk about exiting a business in advance. Some of them do, but I would think a lot of business owners would benefit from it.”
Shweta says that these business owners often walk away from these sessions thinking they’d love to sell their business but want to give it another 1, 2 or 3 years.
Business owners who attend the seminars often have the mindset that they will prepare it for sale when they retire but don’t realise it is an actual asset they are selling and can get a return.
Shweta's advice to every business owner, inspired by author Stephen Covey, is to “begin with the end in mind”.
“When I sell a business, on the day of the settlement, I tell them ‘come back to me in 5 years and let me review your business for an exit strategy’ but begin with the end in mind, you are starting a business but always keep in mind that you will be exiting out of it at some stage in your life,” Shweta said.
When looking to sell a business and build an exit strategy for a business, the first thing Shweta wants owners to look at is their books, that owners should always be looking at their profit and loss statements:
“They are not something that your accountant just prepares and you sign off every year and you pay your tax, you’ve got to look at your profit and loss statements and see where you’re bleeding money, see where you’re making money. What is your cost of goods? What are your labour costs?”
These are all things you can keep a tab on with many resources available online from the Australian Tax Office website, to the small business commissioner, there are guides and benchmarks for what your labour costs should be, and what the cost of your goods should be.
“If you need to, pick up the phone and speak to a business consultant and ask them ‘where am I bleeding money and where can I fix it?’ or ‘where am I losing money? What am I not doing right? What should I be spending on marketing?’ and there are so many business brokers available for that but look at your P&L every year and really have a hard look at it, see where it is you can build more efficiencies to ensure your business is running at its peak.”
Three Important Lessons Shweta Shares with Business Owners
1. Realise your Business is an Asset
Businesses are an asset, and this is one of the things, according to Shweta, that many business owners don’t take into consideration. They don’t view their business as an asset like a property, for instance:
“Your business is an asset that you can sell one day and make money out of, and yes you have to look at it that way, you have to build value in your business. The more time you spend preparing the business for sale, the better the outcome and the better the value you’ll fetch from the market. It’s an 80/20, 80% time in preparation and 20% time in selling.”
“If you want to treat a business as an asset, you want to sell it when it’s doing well, making money, you are at a reasonable high, and you know that you’re not burnt out. When you sell a business when you’re burnt out, you get desperate for whatever, you want a quick sale,” Shweta said.
It’s important to have KPIs and standard operating procedures and, more importantly, that all of these are well documented.
“Even businesses as small as a fish and chip shop, I’m not kidding, I’ve got them to document their recipes in a folder and write operating procedures and stick them to the walls so that the transition to the new owner is seamless.”
Shweta explains that this is what a lot of franchises do and that independent businesses often don’t consider these details. When it comes to selling a business, if a buyer is under the impression that the business is “too hard to run”, it will be much harder to sell than businesses that have this documentation.
“I think about this because I had a KFC store, and I know the importance of documentation and visual reminders. If Colonel Sanders didn’t write down his recipe and document that, he would never have had the KFC store he sold.”
“It’s all about that transferable value,” Shweta said.
2. You Are Not Your Business
It can be incredibly easy to underestimate how many hours you are putting into your business, especially when there are family members working in the business or you are simply passionate about the business. This can cause problems when it comes to figuring out the value of the business.
“Any broker will tell you this, the more the business owner is detached from the business, the better the transferable value of the business. It’s hard to sell a business which is known by its owner and not so much by the brand, and I think that’s the trouble with our own businesses.”
“Like my business, for example, I’m so much my own business that if I were to sell it it would be difficult and that’s a service-based business, but there are businesses where people get so passionately involved and businesses are really close to people's heart, so they get really passionate about it and they think they are the business.”
Shweta encourages business owners to separate themselves from their business that they don’t need to be, and in fact, shouldn’t be, the business should be independent of you.
“I also tell them [business owners] to take a holiday for 3 weeks and not look at the business, if they can do that without too much drama, then the business is probably ready to sell. In small micro business it’s hard, in a cafe-type business. It’s hard because you are the face, you’ve got to work in the business, the labour costs are so high.” Shweta said.
From an operations point of view of course the books need to be in order and ensure they look good and, while it might sound simple, make sure there is no unpaid labour. It is crucial to pay family wages for one to two years (preferably three) before you look at selling.
“Medium businesses often don’t have that - but real small cafe type businesses, I tell them to look at their books and tidy them up, remove any cash or personal expenses. Those are the kinds of businesses you probably can’t exit strategy too much, but large businesses that have family members involved and don’t have wages that is a big red flag. Don’t have any unpaid labour from family in the business. That’s a big one and sometimes even in a medium-sized business family just works and we don’t realise it.”
“Ultimately, the transferable value of the business has to be independent of the owner. The numbers should be transparent, they should make sense, and they should be in line with industry standards.” Shweta said.
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3. Pay Attention to Your Loans and Leases
A key thing to make sure you have in order when exiting is your lease. If you are in a leased premises, that means there is also a lease to transfer with your business. The price a buyer is willing to pay for a business can be highly affected by a poor lease agreement. This is an especially important factor when selling retail or hospitality businesses.
“If you have a lease and you have got enough options to renew, then you know whether there is a demolition clause in the lease or not, you also understand that the rental to turnover percentage is well within the range. It’s not like you’re paying 50% rent because then it’s not an asset. It’s not a viable business, so you should know that okay, a business like this at 11% rent (for example) is in the ballpark range.”
If you’re a business owner looking to sell a business and you own the premises, you may want to consider leasing it out to the buyer, as opposed to selling freehold.
“When you own the property, and you are looking to be a landlord, you should have a property designed to be leased out. That happens in country areas a lot, we sell a business, and the owner keeps the property because that’s their superannuation. So you design the sale to that, you should know there should be a lease in place, what do you want from the tenant, you need to know what sort of tenant you want, you need to know the profile of the person.” Shweta said.
Shweta is a registered business valuer, so from a valuation and market appraisal standpoint, when it comes to your loans, the difficult part of selling a business for the seller is that it doesn’t matter what they paid for the business. What they owe has very little impact on what a broker can get for the sale.
“This is why an exit strategy is so crucial, that you run the business to sell it at some stage. If there is a loan on the business, irrespective of the loan, the business will sell for what it will sell for, depending on what you’ve got on paper and how you’ve conducted the business. They have to factor that in, if they want to sell the business now or if there is a health scare, or if they are mentally over it. I know I can get $200,000 for it, and they owe $300,000 for it, I can’t change that. It has very little bearing on what you can get.”
“The performance of the business determines the price of the business and, of course, as a broker, the presentation of the business. I believe brokers who can present the business well and build a really good information memorandum, have good presentational skills and have a good understanding of the business and have good sales skills, we can fetch a lot more money than they can themselves.” Shweta said.
Common Mistakes Sellers Make During Their Exit
At Bsale, we find the most common reason businesses are listed for sale is due to personal circumstances such as retirement, illness, relocation or burn-out. Shweta emphasises to all business owners the importance of foresight and being ready when life throws you a curveball.
“A lot of times I get approached [by business owners] when they’re at their breaking point. You want to sell the business when it has hit a high when it’s doing well, if you want to get the right price for it, you don’t want it to decline, and you don’t want to get too burnt out."
Selling a business on a high is the best time to sell, a buyer wants to see growth. Shweta shares how to get your business in the best position to sell before issues start showing in the business and the owner starts thinking, “oh my god, I’m tired. I want to sell”.
Shweta Advises When you Shouldn't Try to Sell Your Business.
- When your too burnout.
- There is no Lease. If you don’t have a lease, there is no business.
- When you have something broken in your business that you haven’t fixed.
- When you know there is an industry crisis looming, even if you want to sell it, we need to adjust that in the asking. So be prepared.
It can be easy to get too emotionally involved in your business, as Shweta said, for a lot of owners, this business has paid for their kids' schooling, it’s paid for their living, and they’ve grown in that business. At the end of the day, it is still an asset and needs to be treated as such.
“Have that passion, but it’s still an asset, it has a value, and you can sell it, and that is the best thing you can do, sell it to somebody who can handle it better than you did.”.
Shweta has 15 years of corporate experience, both internationally and locally, in small and large businesses, and most recently, the recipient of the AIBB Service Award for South Australia at the 2022 AIBB conference. To meet Shweta and discuss your business situation, contact Accelerate Business and Franchise Sales.
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Tags: exit strategy selling acquisition business broker feature
About the author
Caitlin Mary
Journalist
Caitlin has a background in media and communications, studying journalism at University and doing various freelance writing and production work over ...
