Preparing for the Exit Boom in Business Ownership

This is the first article in our series on how to build an exit strategy. This introduction article focuses on the catalyst event.

There is a wave of SME businesses looking to exit with 600k Australian boomers seeking to sell their businesses by 2030. In Australia, 47% of businesses have owners who are above 50 years, with 22% aged 60 years and above. By 2030, estimates are that 600,000 businesses are seeking an exit, and we estimate that 190k have revenues over $2m pa.

However the current model to exit these businesses is sub-optimal and many of these business owners are not ready to exit which ultimately impacts their success rate and the exit price that can be achieved. We view it as a tragedy where a great business does not have an exit strategy to ensure its legacy and provide a monetisation event for the current owners. Let’s unpack this.

First, the current business broker model is sub-optimal. It focuses on the transaction itself but fails to contemplate the critical steps needed to make a business ‘investor ready’ (more on this below). It tends to be a traditional listing (advertising based) process without a strategic lens of identifying who are the optimal buyers for the business. It's also a costly process (with transaction fees circa 8% of the sale price), that is a lot of value to give up for a ‘hit or miss process’.?

Second, selling your business (or any form of capital event) is a much more strategic process that should start well in advance of the transaction. We call this Investor Readiness. Below we highlight a few critical areas:

• Exit Strategy: Some businesses do not formulate a proper strategy to ensure a path to a successful exit at an optimal valuation.

• Governance: Is there a stewardship model that protects an investor (new owner).

• Growth: Does the business have a strategic plan to optimise growth, systemise the business (including removing key person risk) and drive people and culture.

• Investor readiness: Includes being due diligent ready, reviewing key risks including securing intellectual property, supplier and customer contracts, securing key staff. It also extends to having a concise investor story covering the outlook for the business and the opportunity for a future owner.

• Sale strategy: What is the timeline to sell and therefore the timeframe to prepare. What deal structure (ie outright sales vs earnouts vs…) is preferred and what handover or transition period is acceptable.

In the coming weeks, we will publish a series delving into these topics. In the meantime, if you need assistance or have questions, feel free to contact LTV Partners.

#ExitPlanning #BusinessStrategy #InvestorReadiness #BusinessValuation #SuccessionPlanning?

Related Sources

1. What is exit planning?
2. Exit Planning Is Part Of A Business Strategy
3. Small Business Matters?