Growing business value for retirement

So you’re running a business, and you’re thinking about retirement. Nobody will be able to run your business the way you do, but just shutting your doors probably means you will be throwing money away…

What’s the game plan?

Are you going to hand over the reins to an employee, or family member? Or are you going to put your business on the market and see what you can get?

Each has a very different dynamic, and the method you use to value the business is a bit different. In one scenario, you might keep a stake much longer, and the new guy(s) or gal(s) buying in might have a special deal or ‘earn-in’.

What’s important about the business may be very different for an employee than for someone else looking to buy the business. An employee will (hopefully) have bought into your vision, and share a similar vison for the business. An unrelated buyer might just want to diversify, pick up customers or earn cash.

Working out what’s driving your buyer or who to target is really important. You could get a formal valuation, or a broker might appraise your business at a certain dollar value, but to the right person it could be worth a lot more money.

Plan early.

If you’ve never had a business valuation before, you might not be aware of what different things will have an impact on value. Get a business valuation done early – at least three years before you intend to retire, so you can focus on changing direction to get the best value you can. A valuation will identify the value drivers in your business, and the potential weaknesses.

A really basic example is if you have been paying for growth. Spending on marketing or sales teams to grow is great, but you’ll sacrifice short-term profitability. This is a no-brainer if you’re starting out, but brokers or buyers will put more weight on the lower profit and you’ll sell yourself short.

Another easy example is tying up paperwork. Say, for example, that you’re a cleaning company. All your clients love you but you have no fixed contracts. A buyer will just see that you have no contracts and consider it a risky bet, and they’ll expect a lower business value. I mean, what if all your clients just leave right after they buy it? Talk to your top customers – they may be happy to sign a one-year or two-year contract, and suddenly you’ll look like a much stronger business.

There are lots of little things like this you can do to improve the saleability of your business, and the ideas above won’t work for everyone – every business is different.

What’s next?

Do you need a valuation? Probably not. But an independent valuation may provide a little direction that might help, or help identify what makes you so good or not so good. We’re happy to have a chat about your situation for no charge, and let you know what we think.

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