BABY boomer business owners are ill-prepared to sell their company, despite many viewing it as their main source of retirement income.
According to the study, 70 per cent plan to sell their business over the next 10 years, but less than half have undertaken any strategic planning such as valuing their business or planning for capital gains tax liabilities.
Conducted by accounting and advisory business William Buck, the research indicates 50 per cent of the business owners surveyed have never bought or sold a business nor been approached by a potential buyer. More than half of those surveyed have never had their business professionally valued and most do not know how to maximise the value of their business for sale.
The research surveyed 200 owner-managed businesses in Australia and New Zealand with an annual turnover of up to $100 million, with most respondents belonging to the baby boomer generation.
Manda Trautwein, director of William Buck, advises business owners to start planning for the sale of their business a number of years before the intended transaction.
She says potential buyers will want to see the business' accounts going back three to five years and will need to understand how one-off non-recurring income and expenditure have impacted the underlying profitability of the operation.
"And buyers will want to know if the business owner is not drawing a salary because they will look at the business from the perspective of having an independent CEO running it," she says.
This is something business owners often need to plan for as many reinvest profits into the future growth of the business and therefore cannot necessarily demonstrate a track record of high profits or don't draw down a market salary.
One business owner who is thinking about the right exit strategy for her business, a recruitment company that specialises in placing scientific and technical staff, is Anne Sabine, chief executive of Evolve Scientific Recruitment.
The business is in a growth phase, but Sabine, who is in her early 50s, has not yet decided whether she wants to hold onto the business or if she is readying it for sale. "We're looking for acquisitions but I'm also forming an advisory board of external people to help me focus on the strategic side of the business, which tends to go by the wayside when you're concentrating on making sure you're cash-flow positive," she explains. "I'm looking to build it into a big enterprise because the science market is limited so I'm exploring a move into blue-collar areas to expand the business."
She is also looking to hire a chief executive. "This would give me the option to stay in the business and have a say without taking on the entire burden of running it day to day."
Frequently Asked Questions about this Article…
How prepared are baby boomer business owners to sell their business, according to the William Buck study?
The William Buck study found many baby boomer business owners are ill-prepared to sell: 70% plan to sell within the next 10 years, but less than half have done strategic planning like valuing their business or preparing for capital gains tax.
What strategic planning steps are baby boomer owners commonly neglecting when preparing to sell a business?
Many owners have not professionally valued their business or planned for capital gains tax liabilities. The study also found more than half have never had a professional valuation and most don’t know how to maximise business value for sale.
When should I start planning my business sale to attract potential buyers?
Manda Trautwein of William Buck recommends starting planning a number of years before the intended sale. Buyers typically want to see accounts going back three to five years and clear records of one-off or non-recurring income and expenses.
What financial information will potential buyers expect when evaluating a business for sale?
Buyers will expect three to five years of financial accounts and explanations of one-off non-recurring income or expenditure so they can assess underlying profitability. They’ll also want clarity if the owner hasn’t been drawing a market salary.
How does an owner not drawing a salary affect buyer perceptions in a business sale?
If an owner isn’t drawing a market salary because they reinvest profits, buyers may question whether the business can operate with an independent CEO. Buyers evaluate the business as a standalone operation, so demonstrating sustainable owner-independent earnings is important.
What proportion of surveyed owners had never bought or sold a business or been approached by a buyer?
The William Buck research showed 50% of the surveyed owner-managed businesses had never bought or sold a business nor been approached by a potential buyer, highlighting limited deal experience among many owners.
What was the scope of the William Buck survey on business owners planning to sell?
The survey covered 200 owner-managed businesses in Australia and New Zealand with annual turnover up to $100 million, and most respondents belonged to the baby boomer generation.
Are there real-world examples of owners preparing an exit or growth strategy that everyday investors can learn from?
Yes — Anne Sabine, CEO of Evolve Scientific Recruitment, is weighing whether to hold or prepare her recruitment business for sale. She’s forming an advisory board, looking for acquisitions, exploring new markets (including blue-collar areas), and hiring a chief executive so she can step back — actions that illustrate strategic planning ahead of a possible sale.
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