|
|
|
|
Talking Technology By Steve Burns, Capital News contributor Even if you have never thought of selling your business, planning for this critical event can significantly enhance the value of your company. Here are my top five points to consider that will help you to plan for this key event: It is useful to determine what your personal and business objectives would be in the event of the sale of your business. Often entrepreneurs assume that they will earn enough from the sale of their business in order to retire. However, this may not be realistic. For example, if you wanted to be in the same after tax position for the next 10 years that you are in now, you will need to look at what the business earns now, what it is projected to earn and what this after tax cash flow means to your family. Performing financial analysis to determine the present value of these cash flows will help you to evaluate what the purchase price would need to be in order for you to meet your financial objectives. Another key objective in selling your business is determining what you will do after the sale. For instance, most entrepreneurs never really retire so what will you devote your time to after the sale? This could include starting up or investing in a totally different business or devoting your time to a personal cause, such as a charitable organization. Consider whether or not your personal and corporate objectives can be achieved by means other than selling the business. Perhaps you will want to continue operating the business as a way to provide income and career opportunities to the next generation of family members. Letting go Although letting go of your business will not be easy, your primary objective should be to replace yourself now so that the new owners are not so highly dependent on your expertise. Although this will cost you to train someone new to replace you or promote someone within the business, this will reduce the risk for the buyer and boost the selling price. If you can't manage to free yourself from your business now then all you have done is bought yourself a job. In order for this to work effectively, you must have a transition plan in place that specifically outlines how you will let go. One of my clients did this a year ago in a very fast growing business. They set clear objectives to be reducing the amount of time that they spent at the business. Within two years they transitioned from being there full time to spending five days a month in the business. The next step is for them to get completely out of the business by putting a formal structure with accountabilities in place. It is possible! Keep in mind that in considering a sale, most entrepreneurs are often not very suitable employees in an acquired company. However, if you must stay, plan to stay less than two years after the closing. Timing and readiness Important considerations in selling your business are both timing and readiness. While the business may not be ready for sale today, you may want to plan for the sale of your business three to five years from now. Ideally you will want to take action now to enable the business to run independent of you, which simply takes hard work. Systematizing your business, which is documenting all of your business processes so that someone with the lowest possible skill level can perform the task, will help to match the timing of the maximum value of the business with your business' readiness. If you view your business as you would a product for sale, you can increase the value of your business significantly. Identifying areas of strength and weakness in your “product” in areas of strategy, finances, operations, marketing, customer service, human resources, etc., can help you build and action a plan that will build on your strengths and minimize these weaknesses. Valuing your company Determining what your company is really worth is a crucial step in the planning process. I think that having a formal business valuation done on your business is a proactive step, regardless of whether you are selling the business now or not. A valuation helps you to understand what factors most significantly impact the value of your company and, perhaps most importantly, what steps you can take now to increase this value. A valuation can also be effective in determining a valuation range and the key terms and conditions that are important to you in a sale. Seeking out purchasers For many business owners, reacting to an inquiry is easier for them than taking the initiative and proactively seeking purchasers. However, being proactive in identifying and pursuing potential purchasers can often result in a better fit and potentially more than one company interested in purchasing your business. To be effective, you need to decide ahead of time what information you will give to potential purchasers and at what stages. Disclosing too little information and requiring purchasers to go through too many hoops to have basic questions answered could result in killing any potential deal from the outset. It is often a delicate balancing act to consider the purchaser's needs for more information with your need to qualify the purchaser and not to disclose too much information too soon. Next week we will look at other important considerations in considering the sale of your business. Steve Burns is the president and CEO of Burns Innovation Group Inc. and Steve Burns Inc. Chartered Accountant. You can reach Steve at 763-4716. |
|
