Consider this: you have studied the opportunities for a new widget, identified your target market, crafted a bulletproof marketing plan and commenced manufacturing. You have dedicated months, perhaps years, to researching, testing, developing and funding this new development that is expected to generate significant revenues and profits and underpin your company’s future.
This is what most would recognise as a typical product development and marketing process. Identify a niche and/or need, create a product/service and then communicate the offering to the target market in order to generate sales.
Imagine further that this same discipline was applied to the sale of a private business.
I know, it’s a fanciful notion, that a business owner would invest the same amount of time and effort into maximising the value of an asset that is far more valuable than the products and/or services it sells. And I know it’s fanciful, because it rarely happens.
The typical situation with business owners is this: mention exit planning five years before they’re ready to sell, and they kick the can down the road. It’s just not top of mind or important enough in the current context. And why would it be? They are enjoying what they are doing, making good money and maintaining the passion required to drive the business’ growth and performance.
But it doesn’t last forever, as we all know. Mention exit planning again at the point where they have decided to sell and they say there’s not enough time to do what has to be done and they just want to go on the market as is.
What’s wrong with this picture?
A private business is, in so many cases, its owner’s most valuable asset – on paper, anyway. So why would someone consciously choose to neglect investing in capturing and protecting that value so that this key asset is one that another party will want to purchase at some stage in the future. It is little wonder that so few businesses that put up the “for sale” sign actually find a buyer on appealing terms – as few as one quarter if recent figures out of the USA are any guide. They are just not designed to suit the needs of the market.
It should be remembered that buyers of and investors in private businesses are simply looking for a return on investment (ROI), a better ROI in fact than they can achieve by deploying their capital into other asset classes. Whether it is an individual looking for an owner/operator opportunity (whose $500k invested in a business offers a far greater ROI than term deposits, real estate or equities), a competitor looking for greater scale or a strategic buyer seeking access to new markets, ROI is the key consideration as to where the investment is directed. Guaranteed that if interest rates on term deposits were 10% or more, the number of buyers prepared to take the risk on private enterprises would quickly diminish.
To that end, it is the responsibility of business owners to ensure that what they take to market when the time comes is tailored to meet the ROI expectations of the business’ ideal buyer. It needs to be sustainable, systematised and independent of the incumbent, with realistic forecasts, streamlined cost structures and strong compliance with legislation and regulations. To achieve this, business owners need a mindshift, one that sees not a manifestation of personal blood, sweat and tears but a financial asset, neatly and accurately constructed and packaged for a particular market. Just as they would a product or service sold by the business.
So don’t hit the wall and then call the nearest business broker with instructions to sell as is. Chances are you either won’t find a buyer, or at best you’ll get one on vastly reduced terms from what could have been achieved with a little thoughtful preparation.
It’s not just a business.
It’s an asset.