Whilst Flexible Capital tend to deal with more business purchasers than business sellers, it is important to understand what your purpose for entering business is, and what your exit strategy will be. Some like the allure of being their own boss and working the hours that suit themselves, and others want to have a more direct relationship between their efforts and their rewards. Whatever your driver, it is important to understand that at some point it will be time to pass the mantle on.
In order to maximise the value off your business, it is important to minimise the risk for any purchaser. Risk in business incurs a cost, be it in financing, or a lower price when you choose to sell.
Some simple ideas to reduce risk are as follows:
- Succession planning – who within your team is able to run things in your absence? This is not only a value add when selling, but will also allow you to take time off whilst still involved in the business. Bear in mind it is critical that this person can be trusted, and understand the authorisation you are providing to this person – it may be wise to retain control of final authority when it comes to transfer of funds
- Lease terms – when selling a business with a premises, remove the risk of the property owner forcing the new owner to relocate. This may involve a long lease term, or the option to extend at the end of the lease period
- Keep the books in order – find and utilise a competent and efficient external bookkeeper. Make the books easy to understand, and consistent in their approach.
- Avoid under reporting – a lot of businesses (particularly in the SME space) will run every possible expense through the business, and attempt to conduct a large amount of cash transactions in order to avoid paying tax. Bear in mind, if a transaction doesn’t go through the books:
- It makes it harder to borrow for / against the business
- It reduces the value of the business when trying to sell, as there is no evidence of previous strong performance
It is also worth considering staying on for a defined period off time to assist in training the new owners, or if the business is specialised (and heavily dependent upon relationships), perhaps staying on as a part time employee is a value add proposition for a buyer, and a great transition for an owner looking to focus more on lifestyle.
If you require information on finance options regarding either the purchase or the sale off a business, please contact the team at Flexible Capital.
