Congratulations, you have done it!
You have built your business through your hard work and passion. The long hours at the office, those battles balancing the books, and the incremental improvements that you fought hard for are behind you.
Now unlock the value in your business
It is now time to unlock the value that you have built.
All business owners will exit their business, the question is WHEN and HOW?
One of the difficulties of a business exit is the perception of it being overwhelming and complex. With so much information to be processed in a business exit, many owners procrastinate about doing anything. Often this results in a failure to plan an exit and a loss of the hard-earned wealth in the business.
Consider the following:
- Is now the right time to start planning for your business exit?
- After working hard for many years in your business, what do you need to do to unlock the hidden value?
- How can you ensure your business is attractive to potential owners?
Business owners work a lifetime to accumulate their wealth, though it is locked away until released when the exit strategy is executed.
Now it is time to enter the equally challenging phase of releasing the wealth that you have accumulated in your business. This process takes some time with on average two to three years required from our experience. Importantly this will include actions to structure the business to make it attractive to potential buyers, and a thorough assessment of several different options for exiting your business. We aim to help you design the exit strategy that best fits your individual goals.
Did you know?
At a national level, some interesting facts about businesses are:
- There are approximately 2 million small businesses in Australia.
- They have an estimated value of over $2 trillion.
- The Baby Boomer Generation own the majority of these businesses.
- The Baby Boomers are mostly aged in their fifties and sixties.
This means that over 1 million businesses will change ownership during the next 10 years.
At a local business level, the transition to life after business is problematic for business owners because:
- 75% of business owners do not have a plan for their business exit.
- 52% of business owners are relying heavily on the sale of their business to fund retirement.
Most business owners don’t know that 80% of businesses will not sell because they are not structured to be attractive to potential buyers.
Optimising Business Value Pays Off ……
Often it is easier to drive up business value by reducing the purchasing risk for potential buyers than by improving the profit. This is because the more confident that potential buyers are in generating equivalent profit after they buy the business, the higher the multiple that they are prepared to pay.
Selling Price = Profit times Multiple.
Our analysis from investigations reveal that a business that is totally reliant on a business owner is highly risky and normally generates 1.5 to 2 times multiples. In contrast a business that has developed systems and well understood accountabilities has much less purchasing risk and can generate 3 to 4 times multiples.
Business Sales Price Example
This simple chart below shows how the value of a business can be determined by its profit (e.g. EBIT) times a multiple.
In this chart the selling price of the business can be improved significantly even though the profit remains constant at $1M EBIT (profit) per year. This is achieved by reducing the purchasing risk to increase the multiple.
Reviewing the higher risk business shown by the ‘solid blue line’ shows a Selling Price of $2 Million. Here the solid blue line represents a risk multiple of 2 times, and reflects a business with high key person risk, relying heavily on the business owner.
Alternatively we can review the improved performance of a lower risk business as shown by the ‘dashed green line’. This same business has undergone a business improvement process to address the reliance on the business owner and installed developed systems and well understood accountabilities. Now even though this business still produces $1M EBIT, its risk multiple is 4 times and generates a Selling Price of $4 Million.
As a guide the investment you will make in optimizing the business value should be returned many times over in the upside contained in the final sales price.
Time to Start your Business Exit Journey
Our business exit planning process is holistic in nature, addressing your personal, financial and business needs. It cannot be done overnight though, and from our experience takes between two to three years to complete.
This process allows you to design and implement the exit strategy that best fits your individual goals and gives you peace of mind. With the end result, that it enables you to leave a legacy for your family rather than a mess to clean up.
At Exit To Success Consulting, we focus on making the sale of your business a win/win for both you and the buyer. This is achieved by ensuring:
- You as the owner receive your reward for your years of hard work building the business.
- The buyer feel assured in the knowledge that he has purchase a great business with a strong foundation and on going potential.
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