Business News

Achieving a successful exit

All SMSF practitioners would like to maximise the value of their business when it’s time to leave. Craig West details some of the critical elements in accomplishing this goal.

Most business owners go into business planning to maximise the value of the business and extract that value (most often by selling) when they exit. But the research tells us most don’t have a plan or strategy around how to do this and therefore often fail to either maximise the value or extract the value or both.

The most recent (June 2013) “MGI Australian Family and Private Business Survey” highlights several key statistics in relation to business owners looking at an exit:


  • Owners in the 60-69 age bracket – 37 per cent – are up from 21 per cent in 2010 (average age now 58).

Business objectives:

  • 55 per cent accumulate wealth,
  • 21 per cent pass onto next generation,
  • 9 per cent employ family members, and
  • 34 per cent do not have an adequately funded retirement plan (up from 17 per cent in 2006).

Sale of business:

  • Would seriously consider selling if approached: 64 per cent (25 per cent have been approached in past 12 months) – 79 per cent of non-family firms,
  • Plan to sell (now or later): 44 per cent (75 per cent of non-family firms).

Issues and challenges:

  • Letting go of leadership and control 37 per cent,
  • Securing adequate capital for growth and retirement 36 per cent,
  • Providing liquidity for family owners to exit 33 per cent, and
  • Choosing a suitable ownership structure for the next generation 33 per cent.


  • 75 per cent have not agreed a proposed succession plan, and
  • 33 per cent are relying on the sale of the business for cash to fund retirement.

This should be a warning to business owners. Succession, or exit, will happen to you sooner or later and the opportunity is to take charge and manage the process rather than let it happen to you. I have worked with many business owners who have successfully done that and managed to substantially improve the value of the business, find a strategic buyer who preserves and, often, improves their legacy and in doing so have been able to fund their retirement.

We employ a 21-step process with clients to partner with them through the process that often takes three to five years to implement. It has been specifically designed to achieve the best possible exit outcomes for the business owner.

The key lesson though is to begin with the end in mind. That means design the business, implement strategy and recruit the right people with your exit in mind. The alternative is to be the passenger throughout the journey to exit and not the driver.

Achieving a successful outcome is really focused on two areas:

1.Internal – what are the key things we can focus on to ensure our business is valuable, attractive and saleable?

There are eight key areas here.

1. Size: simply put, ‘size does matter’ – there is much research that supports the fact businesses with a turnover of $5 million or more nearly always sell at higher multiples than their smaller counterparts. While I am not in favour of growth for growth’s sake, designing your business to grow to at least this level of turnover will maximise value. This might include making acquisitions (of complementary businesses), opening in other states or looking for baby boomer business owners desperate to exit and retire. Interestingly, the research clearly shows one of the top outcomes for a successful exit, in the minds of baby boomers, is not the selling price but rather an assurance the business will continue after the exit (legacy) and the new owner will look at their staff.

2. Business model: is your business boutique or scale and even more importantly is every aspect of your business, including customer service, online presence, the people you employ, your pricing strategy, your office location and fit out and your marketing materials, aligned with your model.

3. Revenue: recurring revenue is worth more. Do you have clients on long-term retainers, extended contracts, or some type of residual income trail? Businesses that need to make sales continually are far less valuable than a business with long-term guaranteed and/or recurring income.

4. Sales and marketing: your business needs to be able to generate new business, leads, enquiries and ultimately sales without relying on either you or a key person’s skill and sales ability. All businesses need a sales and marketing machine that runs independently.

5. Systems: save yourself time, effort and money – not only are systemised businesses far simpler to run, far less stressful and generally far less risky, but they are also more valuable. The chance of them performing well is higher and the level of specialised skill to run them is reduced by systems. Lower risk is always more valuable.

6. Employees: do you have an employee incentive plan whereby employees are rewarded based on performance? It could be either a profit-share-based plan or ideally an employee share ownership plan. This substantially reduces one of the key risks for buyers – that is, that your employees will exit when you do. It also provides a strong incentive for performance to our people – their financial wellbeing (at least a part of it) is closely matched to yours as the owners. The better the business performs and the more profitable it is, the better off they are. So getting employees to think and act like business owners can make a substantial difference.

7. Corporate governance and compliance: often ignored by business owners as either something large businesses need to worry about or simply too hard and far too boring, but this area (particularly when looking to attract the right type of buyers) can add considerable value and again reduces risk. Often we see deals fall over at due diligence stage because of poorly prepared accounts, badly documented processes and little or no governance structures.

8. Owner dependence: the business must be able to run independently of the owner’s involvement. You must be able to step away from the business for an extended period of time knowing it will be maintained and even improved during this time.

2. External – what do we need to prepare to attract the right buyer (who will pay more) and convince them of our value and finally make sure they ‘sign the cheque’?

There are several standout factors here.

1. Strategic buyer: for every business there is a strategic buyer who will pay more for your business simply because they benefit more than most other buyers. The most common example is complementary products and services. In strategic sales it is not about a multiple – financial sales of businesses are often based on a simple multiple of profit – it is more likely the price will be factoring in future strategic value. For example, many sales involve technology or intellectual property assets (unique, well protected, hard or expensive to copy) and the buyer has the ability to leverage that acquisition, creating substantial value.

2. Information memorandum (IM) document: it is amazing to see the number of businesses (otherwise quite valuable) prepared to sell on the basis of a cheap, homemade flyer-style document. A well prepared IM will attract and convince the right buyer. It should also be designed with the buyer in mind and highlight the strategic opportunities available.

3. Tax planning: every exit has several different elements of taxation, nearly always capital gains tax, often stamp duty and sometimes other taxes as well. Inadequate planning in this area can cost you a large percentage of the sale price in taxation and an experienced financial adviser should be involved.

4. Due diligence and documentation: many transactions fall over at this point but this can actually be used to assist in improving the value of the business. If all of your documentation is complete, accurate and up-to-date and demonstrates a well-managed business, it will support your value proposition, not detract from it.

5. Negotiation: being in a position to create some competitive tension, by attracting several of the right buyers, is a good start, but the conduct of the negotiations and discussions leading to the actual sale are a very important aspect and should not be underestimated. As a result of the global financial crisis, the terms of sale are now a major factor and many deals involve a vendor finance aspect, some require vendor participation for some time after sale and often involve warranties or guarantees that may be linked to the final pricing. Getting these terms wrong can see quite a good deal turn very sour.

6. Legal agreements: often business owners are concerned that the legal agreements will scare off the buyer, but this is very rarely the case. Far more importantly, the legal agreements need to be structured to protect the owner after the sale, particularly around the key issues of any warranties, assurances provided and also any event or finance included as part of the sale terms.

7. Corporate advisers: business owners should not try to sell without the best advice. Well-represented businesses are generally taken far more seriously and are perceived to be far more valuable. A corporate adviser who has a reputation for selling good-quality businesses automatically positions the business in that category.

The correct implementation of the items outlined above will achieve two key outcomes: maximise the value of the business and successfully extract that value upon exit.

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