How strategic business exit will get more for your business than you would expect
It is never too early to start thinking about your desired business exit outcomes, including who might buy your business for the highest value.
Whilst you may not know for sure who is going to buy your business you will gain a great advantage from considering what features appeal to strategic buyers who can give you a premium price.
Developing the right business exit strategy and actions to improve the appeal and value for those strategic buyers and being exit ready is critical in gaining the best possible outcomes.
An attractive, customised Information Memorandum for targeted strategic buyers, matched with supporting documents and facts are essential.
Your strategic buyer might be an individual buyer; including management and staff, a corporate buyer (including your competitors or listed companies) or an investor (domestic and overseas).
With so many aspects to consider it is wise to plan to achieve your desired outcomes. Although you would like to think that you can retire at a time of your choosing and obtain the value you wish, unexpected occurrences including illnesses or injuries can occur at times you do not anticipate, and insufficient planning can mean that you will obtain a business value much less than you anticipated, the worst case still – you are not able to sell your business and there is no successor.
I would like to share some of the thoughts of our experienced colleagues below. If you are interested in attending our upcoming webinar about this topic please email us at: erict@bges.co and we will send you an invitation accordingly.
When considering your strategic exit for the business you should be visualising who you are going to sell it to, then set the business up for the new owner.
Is it to be sold as a going concern and in its current business model?
Would it be more appealing to a wider market of investors if the model was slightly different?
Is there any Intellectual Property (IP)? Could be trademarks, websites, a customer database, trade secrets or just your special herbs and spices recipe. Methods of operation or processes can also be valuable IP to others – it doesn’t just have to be about Patents and Design registrations.
The customer base should also be considered, what and who you consider as a valuable client as an ongoing business may be the opposite for the company that may well buy your business.
Are the sales heavily dependent on a particular staff member or worse still the owner? A business that is all about the current owner, is a risky business for the new owner.
Sales Marketing and IP decisions can dramatically impact the value of a business, so make sure you start to think about this – well before you want to sell. Allow enough time to alter the aspects that are needed to be, so as optimise the offering and therefore the business value to the right potential buyer.
Businesses can use customer relationship management (CRM) technology to improve the value of their enterprise during an exit.
Suppose you are planning on selling your business. In that case, it is essential to work with a CRM-driven company that will allow you access to the information you need before getting in front of potential buyers or investors with an exit strategy. While Sage’s survey shows that few people are using customer relationship management (CRM) software to support their exit, succession or transition strategies from an SMB to a larger company — e-Commerce Times notes “that proves how little marketers understand about CRM’s true power.”
Using a CRM system may help businesses to create multiple reports like retention rate, sales cycle as well as lead to customer ratio etc that a new company may want to see before deciding to buy the company.
Pursuing an offshore buyer for your business can be worthwhile when your business is the right size and strategically aligned with the buyers’ appeal.
One of the most sought-after traits of a business for offshore purchasers is that they want to be able to walk into a business that runs like a well-oiled machine with a good financial track record. Another goal is that their investment will allow them to eventually gain permanent residency for themselves and possibly their family.
To enter Australia on a temporary business visa specifically to establish a business, the overseas investor must prove they want to invest at least 2.5 million dollars from 1 July 2021, and they will require a Business Innovation and Investment stream visa. This is where a migration lawyer can assist with their visa application for buying/investing in a qualifying Australian business as the regulations are ever-changing in this area.
The business will need to plan and communicate the availability of the business for sale well ahead, often with the help of a solicitor, a business advisor and an accountant for the business to be sales-ready, as the visa application process might take time for it to be granted.
Ensuring your business structure is optimal at the time of sale can have a significant impact on the tax outcomes of the sale transaction.
The transaction may be disposal of your shareholding or a sale of the business assets. A share sale will be subject to greater due diligence as the buyer is taking on the entity history, positive and negative, and may have a greater risk. In the case of a share sale, it will be critical to review the balance sheet and ensure personal loans and assets are cleared, and property transferred if not subject to the sale. A business sale is often simpler, but the gain is made by the business entity, not the shareholder, which can have different tax outcomes in terms of accessing the proceeds.
The Small Business CGT taxation concessions allow eligible business owners access to various tax concessions which can in certain cases, reduce the capital gains tax to zero if certain conditions are met. Early review with your tax adviser may increase your opportunity to avail of these concessions and structure your affairs to meet the eligibility requirements.
In summary, having a well-considered plan and vision for your exit, and seeking specialist advice, will enable you to realise the maximum value for your business.
For a small business person, business succession can occur at any time. Most of us would like to think that we can retire at a time of our choosing when everything is in order.
Death, incapacitating illness or injury, or even a relationship breakup can occur at times you do not anticipate affecting what happens to your business.
When business succession occurs, it should maximise the benefit for yourself or your estate from something you have committed time and resources into the building.
For short-term absences from your business a Power of Attorney is necessary so a person of your choice can step in to manage when you cannot. If you are the sole director/shareholder then the company needs, its power of attorney so there is an authorised officer of the company to act on its behalf.
For the long term, you need a valid, up-to-date will nominating an Executor(s) who can deal with business issues and protect the company or personal assets for the benefit of the Estate.
If you are in a partnership or a shareholder with others in a company; a partnership or shareholders agreement should be in place to set out how to deal with the death or disability of one of their number.
Planned succession looks at what you would like to do, when you would like to do it and whom to benefit but if time is taken away the other two aims should be achieved. This involves preparing your business and your personal affairs to achieve that outcome.
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