Business Advice

Are you thinking of exiting your business? Here are some key considerations

- December 9, 2021 3 MIN READ

Entrepreneurs are, well, entrepreneurial by nature. They are rarely satisfied with the status quo and thrive on seeing a dream come true. So it’s only natural that there often comes a point where they will look to exit the business so they can move onto the next project, writes Jason Toshack, Vice President and General Manager ANZ at Oracle NetSuite.

Success stories like David Prior who sold Five:AM and founded Bladnoch Distillery or Stevan Premutico who exited Dimmi and founded innovative hospitality startup me&u, remind us that serial entrepreneurs often already have their next venture in mind, or they simply receive an offer that’s too good to pass up.

Whatever the case may be, there are some key considerations before exiting a business. Here are my top three.

3 things to consider before exiting a business

Know your value

If you were to receive an offer to exit your business today, would you be able to tell if it’s a fair offer or not? A business is comprised of a lot of different parts which can make it difficult to accurately value, but there are some tried and true ways to find out, including:

  • Asset valuation – this approach involves totalling all assets and subtracting liabilities to arrive at a valuation. This is a simplistic way to get an initial idea of the business’ value, but it does not consider goodwill which could be a significant asset or even a liability
  • Capitalised value – this method helps you value the business based on expected future earnings. Divide your business’ average net profit by an ROI target. For example, if the average net profit is $50,000 and your ROI target is 10%, then $50,000 divided by 10% = a business value of $500,000.
  • Similar sales – with this method, you compare the sale price of similar businesses that have recently been sold and use this figure as your base line value. Be sure that the business you are comparing yours to is indeed similar in terms of location, size, goodwill, industry etc.
  • Earning multiple – determine your earnings before tax and then consult with a business valuer to find an accurate business earnings multiple. For example, if your earnings are $20,000 and your multiple is 4, then the value = $80,000

These are just some ways you can get an indication of your business’s value before you consider an exit. Be sure to seek professional advice when valuing a business for sale.

Prepare your business: your books and key information

 Potential buyers will want to assess the financial health of the business you are looking to exit. Preparing your books in advance and addressing any concerns before negotiations start is a great way to maximise the attractiveness of your business. You may like to consider:

  • Which financial metrics should be highlighted to a potential buyer? These are the statistics that really show your business’s value or potential value. For example, you might want to highlight the fact that your store(s) are in a prime location or that your eCommerce store has shown significant growth. You will be better positioned to address tough questions from buyers with these metrics firmly in mind – just be prepared to demonstrate the relevance of each metric, and explain why it matters
  • Know the ins and outs – in addition to preparing your financial metrics, be sure to have key information about customer and supplier relationships, how technology is supporting the business and the value that can be gained from the intellectual property at hand. Strong relationships and technology can be a significant value-add to potential buyers
  • Lean on technology –you need to have up to date financial information to present during negotiations. If key information is spread between teams or stuck in Excel sheets, getting the data you need could be an uphill battle! Using best in breed technology like an integrated cloud-based business management platform can help you easily consolidate information, visualise data and generate reports that can support negotiations. Having this information at hand is not only a time-saver, but it may also add value to your sale price
  • Have a team of trusted professionals – whether you have experts imbedded in your business or bring in external experts, be sure to get qualified advice on all things financial before making any decisions

Communicate with your team

Lastly and most importantly, exiting your business can be exciting, stressful, and emotional. It is likely that your team will be feeling this way as well. Be sure to maintain open lines of communication with employees and take time to listen how your staff are feeling and coping. Providing ongoing and transparent communication about the future of your team’s roles is a must during this time of uncertainty.

Exiting your business is a big step and not one to be taken lightly. By understanding the value of your business, conducting due diligence and seeking professional counsel, you will be well placed to enter negotiations and get ready for what is next in your entrepreneurial journey.

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