Australian start-ups need to focus on succession planning from as early as possible if they want to reap maximum business rewards, says Craig West, chief executive and president of the Australian chapter of the Exit Planning Institute.
West says business owners wanting to secure the best price for their enterprise need up to two years to prepare their business for sale and find the right buyer.
“It takes 18 months to two years to exit successfully. If you do it quicker, you’ll leave money on the table,” he says.
West told StartupSmart that underprepared businesses going on sale would become a growing issue as baby-boomer small business owners reached retirement age.
“A lot of business owners don’t spend enough time refining their model. It can be a bit all over the place and that’s hard to exit with much value. But successful companies that sell for a lot are very disciplined on what their business model is.”
While West’s top tip – begin with the end in mind – is good news for start-ups, there are several steps businesses already operating can implement.
“The biggest issues are the ownership structures aren’t clear, and neither are procedures. So you can’t really sell it,” says West. “The businesses that sell well are well prepared, with their systems well documented.”
According to Biz Exchange, the average business sale is for a multiple of two to three times the earnings of the company.
But West believes with proper preparation, businesses can be sold for up to six times their earnings.
He says a key issue buyers focus on is talent management.
“Buyers want a well-run machine. And a well-run machine doesn’t look like the owner and CEO working 80 hours a week.” West says. “It also doesn’t look like all your staff leaving after the sale and the buyer being left with a shell.”
West says many of his clients have added to the value of their business by taking proactive steps to retain talent by launching an employee share options program.
“An employee share option program means your workers have a stake in the business and the financial incentive to make it work. And from a buyer perspective, that’s huge value.”