Every business owner should take the time to answer these questions and consider the financial and personal impacts of a forced business sale.
- Could you sell?
- What price do you need?
- What price would you get?
- What would the financial outcome really look like for your family?
Ask any accountant or lawyer and they will have a story about a business owner that was talking about selling when they suffered a major health event. In the worst cases they have passed away and even the best case likely meant time away from the business recuperating. Unfortunately, a common denominator for both is the detrimental impact on the operation of the business and resulting decrease in profit. In some cases, the death or long absence of the owner has meant that what was once a profitable business is now virtually worthless, and the impact on the family unit is devastating.
Reliance on the owner, a lack of defined business processes, insufficient insurance and a failure to implement basic safeguards means that there is either no business left to sell or what is left is sold at a greatly reduced price.
And it’s not only the health of the owner to consider. It could be the loss of a key staff member, divorce, partnership break up or structural change in your industry. Each of these events can lead to the same outcome – a forced sale of your business at a greatly reduced price because the fundamentals of business value protection were not in place.
The flip side to these scenarios is receiving an unsolicited offer to buy your business. That is when someone walks in and says how much do you want? This does happen, however if you are not organised properly then you risk missing out on maximising this unique opportunity.
In all these situations, one way to protect your business value and therefore your financial security, is to have your business ‘Sale Ready’.
Having a business that is prepared for sale will help you to:
- capitalise on your investment
- maximise the opportunity [or minimise the downside]; and,
- protect your financial future
Being ‘Sale Ready’ isn’t about putting your business on the market but rather it’s about having all of your ducks in a row so that if something unexpected happens and you need to sell [or are forced to take some time off] then you stand the best chance of maximising the result, or minimising the downside, because you are prepared. Think of it as a key risk mitigation strategy.
Being ‘Sale Ready’ means that you have reviewed the key drivers and risks in your business and taken steps to optimise your business performance and minimise risk. While all businesses are different, the following are common requirements for being ‘Sale Ready’:
1. Having an up to date business plan.
- Having a current business plan means you know where your business is heading, having clear goals and understanding the activities required to achieve them.
- Ideally, you are creating a business that is not reliant on you and are building real value in your team and processes.
2. Up to date financial reporting
- Having up to date information allow you to monitor progress towards your business and personal goals.
- In addition, you can make better informed decisions and if you need to sell you have up to date information available.
3. Regularly reviewing the key drivers and risks in your business.
- This involves working from the front door to the back door and analysing everything in between just like you were preparing your business for sale.
- Analysing your value drivers, ensuring major commercial agreements are in place, documenting key processes, completing required staff training and looking for those opportunities to improve performance.
4. You have adequate insurance in place.
- A sale might still be inevitable but having insurance may mean that cash flow pressures are not forcing an immediate sale allowing you to better organise your exit.
- You can afford to take time off, and perhaps pay for a replacement to work in the business on your behalf.
- Always take professional advice that considers your individual circumstances when considering insurance or wealth protection.
Being ‘Sale Ready’ makes good business sense because in addition to protecting your business value the process can deliver a better performing business because the owners are:
- taking time to plan
- working towards their business goals in a structured way
- regularly reviewing their key operations
- focussed on driving efficiency and minimising risk
- enjoying their business more
So, while we can’t predict what the future might hold, we can be proactive and take steps to mitigate the downside from some of life’s unforeseen events and run a better business at the same time.
If you would like to know more about building a resilient business, feel free to reach out, I’d love to help.