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12 December 2005

We’ve noticed a significant increase in the quantity of articles which have been published on succession and exit from business over the past 12 months from an increasing range of industry groups.  There is increasing awareness amongst the business community that there will be a major change in business ownership over the next 10 - 15 years as the baby boomers enter into retirement and as certain industries water down their presence in the market place (e.g. toy shops, family hardware stores, butchers, and corner liquor outlets).  Fashion trends in the house such as the move away from wallpaper to painted internal walls and use of imitation wooden floor boards rather than linoleum are impacting on sale price of businesses in these historical industries.

Many business owners are becoming up skilled on the key factors impacting on sale price, and of the steps required to experience a successful transition to new ownership.  At Hayes Knight we encourage an ‘ongoing build of knowledge’ to assist in each business owner’s succession plan however, we also advocate that this knowledge must be put into action early if desired outcomes are to be realised.

We supply business owners with two key messages to focus on and to implement over the coming months;

  1. Start applying your succession knowledge and where required, ask for help.  Move into the role of becoming a participator rather than a spectator in the exit from business process.  Dreams will never come true unless you take action towards them.
  2. Use a rifle not a shotgun to hit your desired target - most people aim at nothing and hit it with incredible accuracy.  By this we mean you must take a structured approach to have a better chance of achieving your exit price.  Do it once, and do it properly, to do a deal.

We’ve used the phrase ‘plan the work, work the plan’ in respect of annual budgeting and setting business plans.  This message should not be lost on business succession.  If you’re planning on exiting your business in 3 – 5 years time, the actions you and your team perform in and on your business today will impact on the ultimate sale price and on the amount of time required to sell your business.

For many businesses, sale value is derived by applying a future maintainable profit level against a risk factor of achieving that earnings level.  In most cases; the higher future earnings are and the lower the risk in achieving those earnings, then the greater the potential sale price.  Business valuers and business buyers will usually look at the previous 2 years trading results when determining future earnings potential.  Therefore how you trade today, including engaging in growth opportunities and maximising capacity, will have an effect on price.  Refocusing energies into creating and managing systems, and addressing internal weaknesses and external threats will help to reduce business risk.

At Hayes Knight, we cannot stress enough the influence on sale value by taking action towards these key business improvement factors early on.  As an owner it’s hard enough to identify improvement opportunities let alone implement them.  Your business should be able to run itself without your daily input.  After all, it will need to post settlement date.  Setting yourself a goal of removing your businesses dependence on you should be your first priority so that you can concentrate on building business value.

Maximising sale price is dependant on business owners and management taking action today.  Successful exit from business is dependant on pro-activity, not from watching how other business owners approach it.  Lead by example and lead the pack, the ball is firmly in your court.

ASB creating futures.