I have said before many businesses that I come across haven’t even thought about their exit let alone have a succession plan in place. I was told a long time ago not to go into any investment unless you knew what or where the exit was; how you got out. It is a pity that many business owners don’t follow the same mantra.
The baby boomer demographic cohort is such a large number of people and 2016 saw the first baby boomers reach the age of 70. Doesn’t mean much? Who cares? Well we all should as this is going to have far reaching effects on our economy and therefore way of life. We are moving from a long period of asset accumulation to a significant period of liquidation. A decent shift to the supply and demand equation.
What will this do to business and more specifically selling a business. Recent reports suggest that as much as 80% of small businesses are owned by baby boomers. 80%!! That is huge. With the market supply that will eventuate, business owners will need to ensure they have their business sale ready. They need to stand out from the pack.
If business people followed that mantra I mentioned then they would always be ‘sale ready’. You see in my opinion sale ready doesn’t mean you are going to sell (although everyone has their price and therefore we are always for sale!) but it means you have your business in the best shape possible to ensure maximum returns whether upon sale or each year of operation.
That means understanding what the market wants. Generally the market wants less risk so you need to create less risk in your business. The whole business not just in what you actually do.
This means having systems and processes in place. Don’t over think what this means. You need enough documented understanding so that things work to the level you expect whether you are there or not. This is from delivering on a job for a customer through to answering the phones to counting stock and everything in between. This reduces key person risk which is one of the biggest inhibitors in maximising a sale.
It means reducing or removing concentration risks in your customer base. Ensuring cash flow is sound. Locking in income streams on the right terms wherever you can. Having a great learning and development framework that is actually carried out for your team. Structuring your assets appropriately. It means implementing a disaster recovery plan and locking in your best and brightest people with incentives and in many cases equity. It means having a robust governance and reporting structure and the right advisers, with appropriate and proven skills, around you so that the status quo is challenged. This is not all there is to do but it is a great start.
Another good tip is to understand what the value of your business is. Too many business owners don’t know this or believe something that realistically won’t be achieved because they have listened to the wrong people; unqualified and inexperienced people. Is the actual value in line with your desired value or your expectations? If not then time is your biggest ally providing you use it well and apply the initiatives above.
As I said all businesses should be doing this from the start but especially any business owner thinking of selling in the next 5 to 10 years. If you want the best chance at your best outcome don’t leave it until you are ready to sell. When you have had enough. The wave is coming!