With the first of the babyboomer generation reaching retirement age, there have been predictions of a large number of small and medium size enterprises (SMEs) coming onto the market and depressing sales prices.
Mr Simon James, partner at accountants and business advisers HLB Mann Judd Sydney, said that business owners who plan ahead can still achieve an attractive price even in a “buyers’ market”.
“It’s likely that the numbers of businesses for sale will reach new heights in the next two years and, with one or two ups and downs, will remain high for the next ten years or so.
“But even with a large increase in the number of businesses on the market, sound businesses with a good outlook will still be in demand. “Some commentators have suggested that, as many baby boomer business owners retire, there will be fewer people around wanting to buy businesses, but I don’t believe this is true.
“In my experience, many SMEs are sold to larger businesses such as consolidators or international companies wanting to expand in Australia, and a number of SMEs are sold to family members.
“There is no reason to think that this will change for well positioned businesses.”
Mr James said that the critical thing for all baby boomer business owners is to be “investor ready”.
“Those who haven’t already started their succession planning process should be prepared to stay in the business for another two to five years, to give themselves enough time to set up the business in a way that will gain maximum value.
“Getting advice is a critical part of this, not only to ensure the business is attractive to buyers, but to help support the sales process and maximise the sales price,” he said.
Some of the issues business owners must consider include:
Mr James said that a number of the business owners he works with would like their business to remain in the family but this still requires careful planning.
“In this situation, the owners’ retirement planning needs to take into account how the sale is going to be financed, especially if its sales value is a major part of their retirement planning.
“Holding discussions with family members and lenders; ensuring the business runs independently of the owner; and giving the family the opportunity to show lenders, employees and clients they can run it successfully, will require planning,” he said.
If an owner is committed to retiring in a particular year then the price can be affected, particularly for a trade sale.
“Waiting for the best market conditions can make a significant difference if the market is in the doldrums.
“Selling to the family may also mean selling at a time when the market is subdued, as a commitment to handing over the reins and all decision-making will need to be made to avoid dissatisfaction and dispute,” Mr James said.
Succession planning is not a short term activity, Mr James says.
“Some long term strategies are essential to get maximum value from the sale – of particular importance if it is to fund the owner’s retirement.
“Unfortunately, the value of your business is not the amount that you want for retirement. It is the amount that someone else is willing to pay for it.”
He said that a business with a strong management independent from the owner, good profit record, audited accounts over several years, good financial records, and sound marketing plans for the next several years, are all considerations that make a business attractive to a buyer.
There are other issues that owners need to consider when selling the business. Many of these need to be covered in the succession plan and include:
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and is part of the HLB Mann Judd Australasian Association.
For more information please contact:
Simon James – 02 9020 4212