Ready to sell? How to make your family business stand out from the crowd
There are five key actions you can take to get your family business sale-ready, and make it stand out in an overcrowded sales market.
In my previous blog, I explained that in the next five to 10 years there will be an avalanche of family businesses coming onto the market in Australia, as baby boomers retire and their children are reluctant to take over.
In our experience, the real issue is getting to the business early enough to assist in a successful sale.
It’s crucial to make this process as easy as possible for the buyer, and to ensure your business stands out from the crowd.
1. Make your business stand out to potential investors
In the SME space, there is a bigger risk factor to the buyer evaluation process – the more you can take out the perceived risks by getting your business sale-ready, the higher the value you will achieve.
You need to prepare accurate monthly accounts, documentation of key processes, an appropriate business plan and cash flow and financial forecasts including historical financials.
This “vendor due diligence” ensures things are in good shape and obvious risks are mitigated for potential buyers.
Having KPIs, dashboards and measurement tools in place increases investor confidence, reduces risk and should significantly increase the price you get for your business (in our experience, a 20% increase in price is not uncommon).
Understanding the tax consequences of a sale is also critical. Too many times we have come across businesses with complex company structures that create not only hurdles for buyers but also tax leakage for the family, resulting in a breakdown in closing the deal.
2. Review performance and make improvements
Performance improvement in preparation for a sale process can release locked-up value, driving earnings and cash to the bottom line.
Using a skilled and independent performance improvement advisor who is hands-on, and has demonstrated experience, can act as a catalyst for positive change to people, processes and operations.
You can achieve increased or sustainable sales, and align products, offerings and customers to maximize growth opportunities.
It’s vital to understand the drivers of your business, including the relevant industry KPIs and how they relate to your competitors.
Are there opportunities for performance improvement to actively drive the top and bottom lines of a business — delivering EBITDA improvement, and improvements to cash flow and working capital?
This process also enables the business to focus on driving tight control of direct costs, improving the value and supply chain of the business, while optimising general and administrative costs and other overheads.
Far too many times we see businesses that have not understood their customer mix or identified unprofitable product lines.
Fixing this, hands the client increased EBITDA, through consolidating product offerings and shedding unprofitable customers and products. These quick wins lead to an increased enterprise value – and a better sale price.
3. Look to your management team
As part of the exit strategy, key management are significant stakeholders in the business. Ensure that you have in place retention strategies to secure the services of your key management, as this will drive value in the sale price.
Is there an identified executive able to take over and lead the business? Prospective investors and owners will pay more if there is an established and performing management team in place, particularly in businesses where there is a “know-how” element.
In a number of businesses it is not unusual for the senior leadership team to consider a management buyout. Consider this as an alternative and understand the potential structure that might work for you, including vendor finance over a period of time.
4. Identify your closest competitors – you may need to merge or sell to them
Most family owned businesses will understand the activities of their closest competitors and usually will have had some contact at industry events.
If the competitors are public companies or large enterprises, there will be public financial information available to understand their performance, activities and growth plans.
Also, common suppliers to your competitors will know how they are performing or if they are interested in acquiring.
Gathering this information can give you an understanding of whether your business may be a good fit for them and an approach can be made at an appropriate time.
5. Your accountant, lawyer or strategic advisor may have access to investors
Your advisors may have clients or contacts looking for growth and acquisition opportunities. Maintain close contact with them and include your advisors in your exit plans.
Vantage Performance is a national performance improvement and turnaround firm – Winner of the 2011, 2010, 2009 and 2008 Turnaround Management Association – Turnaround of the Year Awards.
* This 2-part blog series was adapted from an article by Dom Del Borrello first published in the September 2011 edition of Family Business Magazine.