Exit Strategies For Baby Boomer Business Owners

Posted on by Mark Fernandez

 

Guest writer Wayne Mandic from Nexify provides advice for baby boomers.

Baby Boomers, the post-World War 2 generation born between 1945 and 1965, represents a staggering 29% of the Western Australian population. By 2021, an estimated 550,000 Western Australians will be 60 years old and over, and the combination of improved nutrition and better health care means they will live longer than their parents and grandparents.

The first of this group who were ‘employees’, have already transitioned into an active life-after-work.  Their contemporaries who own their own businesses, however, have been more likely to stay tied to them for longer, either by choice or circumstance.

Having enough money to enjoy their desired lifestyle can be a real concern. Superannuation is seen to be an important source of income in post-retirement, yet less than one-half of baby boomers, notably the self-employed, has more than a token amount invested in this way. 

They have instead poured resources into building successful businesses, which, upon sale, they hope will finance a comfortable and active retirement. Those businesses that have been built on strong foundations should, in theory, do just that.

However, in the next 10 years an increasing number of these businesses will come onto the market. There will be competition in may sectors, which can make selling a business difficult, but there are some simple steps that they can take to attract and satisfy prospective buyers.

Exit Plan

Preparing a business for sale is a strategic and worthwhile investment for owners who want to get the best return on their years of hard work.  Business brokers compare the sale of a business to a house sale which involves tidying, mending, and staging before presenting it to buyers.

Increasing the perception of value in the mind of a potential buyer requires investing the time to put in place a series of steps known as an ‘exit plan’. Business owners should develop an exit plan well in advance, ideally more than 2 years before the intended sale, and it should include:

Management systems: Ensuring continuous operations under a new management is vital. Internal processes and functions must be systematized and properly documented in operations manuals and handbooks which enable third persons to operate the business in the absence of the owner.

Essential documentation: Business relationships are governed by written contracts and agreements. Verbal commitments must be converted into written contracts for the benefit of the new owner. Existing terms of agreements must allow assignment of rights and must be current or renegotiated long before the intended time of sale. Of importance to a prospective buyer are shareholder agreements, supplier contracts, invoices, employment contracts, job descriptions, and papers evidencing proof of ownership over company assets.

Spring cleaning for business: Corporate and financial housekeeping entails elimination of items which diminish business value, such as obsolete and inoperable equipment, bad debts, and stale inventory. Dispose of junk equipment, write off bad debts, collect unpaid invoices and liquidate previous inventory to improve the cash position of the company.

Dress up financial statements: Due diligence ordinarily involves an examination of the company’s audited financial statements including cash flow and profit and loss (P & L) statements. These should show a strong cash position, sustained profitability and management efforts to minimise operating costs in the years preceding the sale.

Strong management team: Some buyers may want to retain key managers and personnel to ensure a smooth transition after the sale. Building a strong management team will make a business attractive to potential buyers. Management skills must be developed through appropriate training and regular feedback.

Undergoing a physical makeover also helps when selling ‘bricks and mortar’ businesses.

Fresh paint and bright signage on the premises, smartly dressed personnel or uniforms, and adopting a professionally designed logo.

The list, however, is not exclusive and can be expanded according to the type of business and targeted selling price.

Engaging a business consultant can offer real advantages for baby boomers when selling their businesses. They are ideally qualified to help create an exit plan with a timeline appropriate to both the market and the business owner, and will ensure that everything is in place for the best possible selling price to be obtained.

For further information on creating an exit plan for your business contact Wayne Mandic at Nexify.   08 6140 6138, wayne@nexify.com.au, nexify.com.au

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