Is your business undervalued?

Have you been running your business for the better part of your working life and you’re thinking perhaps it’s time to move on? Maybe you think it’s time to retire and enjoy the fruits of your labour? If that’s the case, you might be in for a surprise when trying to sell your business.

No matter how long you’ve been working in your business, or how successful you are, there will come a day when its time to call it a day and finally start your long awaited life of leisure. More than likely, this time will come when you’re in your 50s or 60s and you’re ready to retire. Of course, if this sounds like you, you’re what is referred to as a ‘baby-boomer business seller’ and you could be up for a surprise when trying to sell your business in today’s markets.

According to the BizExchange index of late 2014, there were around 42,000 businesses for sale across Australia. And a large proportion of these sales have come about due to baby boomer business owners, like you, (sometimes also referred to as ‘seniorpreneurs’) who are ready to sell their precious businesses off prior to retirement.

Unfortunately however, this large portion of seniorpreneurs are more than likely to overvalue their businesses as they fail to take into account changes in technology and market conditions. And that has caused something of a bubble of baby boomer business owners trying to sell off their small businesses, with nowhere near enough younger entrepreneurs ready to buy them out.

According to Kerry Boulton, CEO of The Exit Strategy Group, “They’re all trying to cash out and attract the same pool of buyers, resulting in massive downward pressure on price”.

Is your business undervalued?

Imagine your hard earned success is being valued much lower than you expected! That’s not what you’d like to hear is it?

A rare but harsh example of this was reported by the BRW where C-mac, a steel fabrication company, thought to be worth $5 million was valued at $0.

How could that be you ask? Well, more recently the company had simply been breaking even at best. Of course, given C-mac’s previous years’ performances and the physical plant and property owned by the company, you’d be forgiven for thinking the valuation would be significantly higher. However the company hadn’t seen profits since the global financial crisis (GFC) and it’s a rare case that buyers are willing to pay for goodwill, as the banks won’t lend against it as per Australian legislation.

So how do you ensure this cautionary tale doesn’t repeat for your business?

According to Biz Exchange, selling a business – especially one owned by a retiring baby boomer like you – can often be an emotional decision because you’ve nurtured your business from scratch to where it is today. Surviving the 90’s recession, 2000’s dotcom bubbles and the GFC means you’ve probably made plenty of sacrifices along the way, and you’re not quite emotionally ready to give that up just yet.

Perhaps you were planning on handing your business on? One of the most common tactics used by baby boomer business owners is trying to sell their business to people they know, for example, a family member or even an employee. While this may seem like a good idea on paper, it’s clearly not working as family and friends aren’t even willing to pay as much as you’d like.

So where does the issue really lie? Very possibly it’s your mindset (i.e. the mindset of the seller). And that needs to change slightly in order for you to get a better deal in the end. After all, some money is better than walking away empty handed or even striking settlement terms over time is better than losing the deal completely, right?

It’s all in the planning!

Planning your retirement early can help you predict your sales price based on reports on property prices and market conditions. It can also help you pinpoint the time frame which may be optimum for selling your business.

The final – and possibly the most important suggestion – is to try and think beyond selling to a limited category of people. Instead, you might like to look further afield, for example, people who are new to the economy and have not been harshly affected by the financial crisis. Did you know? Asian owners new to the country are often very enthusiastic about entering the market in Australia in the same light that they had businesses back in their home countries

Alternatively, you might look to investment groups looking to continue operating certain types of businesses and ongoing concerns installing their own business structures. One thing’s for sure, after you sell your business, it won’t look or feel like your business for long – and you should prepare for that.

In our next blog “Selling your business part 2 – How to get the most from your business sale”, we’ll walk you through the top tips for getting the most from your business sale.

Of course, if you’d like to know more about your options for retirement, we’d be delighted to help. You can always give Kerry a call on 6023 1700drop us a note or connect with Kerry via LinkedIn.

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