Market Forces are changing
You’ve heard of the baby boomers right? In fact, you may even be one. So you will know that the baby boomers will shortly be heading towards retirement. It’s that fact which underlies recent market research saying that 83% of business owners intend to retire in the next 10 years and 46% of business owners intend to sell in the next 5 years. Furthermore, 48% of business owners are expecting that sale to fund their retirement.
That means, there will be a lot of businesses for sale in the next few years, but who is going to buy them? Not the baby boomers, that’s for sure, which just leaves Generations X & Y; the generations who are mortgaged up to their eyeballs, whose ability to borrow is being squeezed by the credit crunch and who would probably rather build their own businesses anyway.
You can see where I am heading with all of this: lots of supply but no demand – a sure way to drive prices down.
Not all businesses will suffer
As with any type of market, where there is lots of supply and limited demand, it doesn’t necessarily mean that every business will suffer. Those businesses which offer a true return on investment for the investor will continue to attract good prices. It’s those where the current business owner hasn’t given any thought to exiting the business or growing value in the business who will suffer. Unfortunately, they may not find this out until they have spent part of their “retirement money” on a process called due diligence.
Due Diligence: the purchaser’s weapon
Due diligence is a process conducted by the lawyers and accountants instructed by your potential buyer. Their job is to identify the potential risks in your business which may impact upon the return on investment for their client. Due diligence is a tedious process and is going to cost you money in lawyers and accountants fees too. Whilst the purpose is generally to help the buyer decide whether to proceed with the purchase or not, it is most generally used by the buyer to drive your price down. The more the buyer will find wrong with your business, the more your retirement fund gets smaller and smaller. In a worst case scenario, the sale will not proceed and you are left with a hefty bill from your lawyers and a business hanging around your neck like a noose.
Then the regrets creep in
It is when you get the due diligence report and your lawyers bills, that the regrets start to creep in. Regrets like: Why didn’t I get a proper employment agreement put in place at the beginning? Why didn’t I secure written supply agreements with key suppliers? Why didn’t I protect my IP? The list goes on. But of course by this stage, it is too late.
It is too late 6 months or even a year out from sale
If you want to exit your business at some stage in the future, whether it be 2 years, 5 years, 10 years or 20 years, the time to start preparing for it is now. That’s because the longer you leave it to put in place key agreements and putting your business in a state where anyone could run it without your input, the harder and more expensive it gets. Take a simple example of employment agreements. You cannot move your employees from a badly drafted employment agreement to a robust employment agreement without their consent. If the badly drafted employment agreement works to their favour, do you think they will give their consent without a financial incentive? Similarly, if your business shows a history of poor cashflow due to inadequate terms and conditions of business and in effective systems, that will affect your ultimate sale price.
It’s like selling a car
If you are selling a car, the first thing your buyer would look for is a full service history. The point behind this document is that it demonstrates the car has been looked after during its lifetime and is therefore going to be more reliable.
If on the other hand you had things fixed up just before sale, you won’t have that history of reliability, and therefore it will present more of a risk to the buyer.
Make sure you can demonstrate reliability in your business
Buyers and investors will always prefer a safe return over a risky return. If you can demonstrate reliability in your business year after year, your business will sell for good money and fund your retirement. But that requires you to put the systems and agreements in place now. Investment of that nature now, will pay dividends later on when you come to exit.
Are your dreams of retiring on the sale proceeds of your business pie in the sky? - To learn more about this author, visit Michael Smyth's Website.
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Leanne Hoagland Smith
Are your sales where you want them to be? Will you be one of the few who achieves sales success or one of the many who have failed to change? So what are you doing to change those results? Let’s be honest, with companies moving globally and at lightening speeds, the traditional business solutions are outdated and dead. My approach moves your business out of its comfort zone and secures your competitive advantage now. If you are seeking to increase sales, build customer loyalty, create a culture of great attitudes or just achieve some sleep filled nights, then we should talk because my clients have experienced exactly those types of results. Learn more about customer loyalty at http://www.processspecialist.com/customer-loyalty.htm Give me a call at 219.759.5601 for a free strategy session. P.S. If you are seeking a motivational speaker, sales trainer or small business expert that will leave your audience smiling and remembering, please feel free to contact me at 219.759.5601. - Visit Leanne Hoagland Smith's Website |
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Michael Smyth
(Visit Michael's Website)
Six years old sounds a peculiar time to
start to legal career, but that's the
first memory I have of going to my Dad's
law firm located in the heart of legal
London. So, with law running in the
family, the natural choice at University
was a law degree. I also had a keen
interest in Sports Law and obtained a Post
Graduate Certificate in the subject from
Kings College London.
I came to New Zealand for a year, but like
a lot of people I quite liked the place,
and I'm still here practising law as a
self employed barrister and running three
businesses: Approachable Lawyer,
Sportscounsel and The Sports Risk
Management Group (the last two even allow
me to combine my passion for law with my
passion for sport).
So in my 11 or so years of practice I have
read numerous cases, helped many clients
out of the mire and set up a number of
businesses. That means not only am I a
lawyer with an expertise in employment and
sport, but I am also a businessman. This
gives me a good insight into a number of
problems my clients face. I also like to
pride myself on my approachability - But
don't take my word for it, visit my
website www.approachablelawyer.com/pro
file.htm
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