I recently studied the Australian Bureau of Statistics figures regarding businesses in the ACT, and while the figures are a little old, they tell an important and consistent story.
At any given time, there are approximately 25,000 businesses in Canberra — each year approximately 4,000 start and 4,000 exit. Assuming Canberra is similar to other jurisdictions in Australia, you can expect that about 70% of the businesses in existence today will still be operating in two years .
If you are one of those 25,000 business owners, what is your longerterm strategy for your business? If the answer is that you would like to sell your business in the near future to enjoy a comfortable retirement, you may be interested in a recent article, Getting your business ‘sale ready’ published by the Australian Institute of Company Directors.
This article raised a whole range of considerations for business owners, but a number of specific points caught my attention:
The first of these focused on the need to understand the potential buyer’s perspective. Simon Merchant from The Merchant Report stated that, broadly, the things potential buyers will examine include:
• How long has the business been established and how long have you owned it?
• How has your income and gross profit margin been trending during this time?
• How much does the business rely on you and how reliable are your systems and procedures?
He also added that for some businesses the length of lease term can be an important factor.
The second issue was around demographics, and particularly the increasing number of baby boomers who may be approaching retirement or have received a redundancy package and may be considering purchasing a business rather than re-entering the full time workforce. In addition to this increase, it is worth noting that a large number of high net-worth individuals from overseas are looking at Australia as being a good location for purchasing a business (not just because of the business climate, but the high quality of life that Australia has to offer).
It’s vital to understand the objectives of your prospective buyer to enhance your sale opportunity and to look at your business objectively from the buyer’s perspective.
Another consideration is that many businesses are offered for sale due to negative cash flow issues. If this is the case in your business, then you may need to take a more conservative approach when determining the price you are prepared to accept.
While selling your business may be your preferred option, remember that it’s never too early to be considering what your exit strategy will be.