If your New Year’s resolution is to retire from your own business, don’t just shut the doors and walk away. Plan an exit strategy, but do it quickly, writes GILL SOUTH.
So you’re toiling away at your small business, heartened by the thought that in a few years’ time, you are going to sell it for squillions and retire in luxury. Well, the bad news is that thousands of small business owners have the same idea and business analysts are predicting a glut.
The statistics back up their predictions. A recent ASB survey says 25 per cent of business owners wish to sell in the next five years. Taking Statistics NZ’s recorded 471,000 small businesses , this could mean about 120,000 businesses will be put up for sale at a rate of 24,000 every year. That’s over 10 times the number that are currently on the market, says business sales adviser David Newport from Switch Business.
Newport says if you want to sell your business, you should think about doing it now, even though he knows this sounds quite self-serving. But his argument does have logic. There are only around 2,500 businesses selling this year among the business broker network and there is plenty of interest. But before you rush into selling, you will have to make your business ‘sale ready’ and there are a number of things to get right if you want those squillions you’ve been dreaming of.
The key, says Newport, is to be able to verify your future maintainable earnings. This is what every buyer needs to see. Another thing you will need is to be able show you have every business arrangement contracted. It’s no good saying: “I’ve worked with these people for 30 years and we have an understanding”.
If you want to retire from your business, a planned exit strategy may mean you can sell it, instead of walking away empty handed.
Personal vs business interests
Too many people have their business and personal affairs tied up, he adds. School fees may be paid through the business, your spouse may be paid for certain things she supposedly does for the company. All that, according to Newport, must be separated out before the sale. Another thing – and it may sound superficial – is that your headquarters and equipment should be looking good.
“The aesthetics of the business are huge,” he says. “If it’s a grotty old factory where you have to go every day, that’s not very appealing to the buyer. Everything is in the perception.”
So who is going to buy your business? Those in the corporate advisory industry says their bet is on other babyboomers and so-called retirees – those very people who have sold their own companies in recent years. Newport doesn’t think Generation X and Y will have the money to buy businesses or if they do, they will prefer to start up their own ventures. Babyboomers are much more pragmatic. They will be looking for regular income and something they will not get too emotionally entangled with. And, they have the finance and the business experience.
“In the last six months, a lot of the people who sold their businesses and retired have said they will buy back in,” says Newport. He has spoken to two or three people this week who have voiced interest in re-entering business.
“I think people will retire from their existing business because they are sick of it,” he says. “But I think an awful lot of babyboomers are not going to retire.”
One client of Newport’s is 70 and ran his own import export business for over 30 years. He poured his heart and soul into the company which he sold in 2007.
“I’ve often said selling my business was like having a second divorce. There is loss and grief in it. It was mine, suddenly it was somebody else’s,” he says. But having said that, he has no regrets.
“It stimulated me. I guess when it stopped being fun is probably the time when I started to think: ‘Why am I doing this?’”
He does not miss the staffing issues. “You are father confessor, banker, finance company all these things to your staff. And yet when I sold, some felt that I had betrayed them. They didn’t realise the human cost of running a business.”
With his next business, he would do it in a far more streamlined way. He would have fewer people, do business more directly (perhaps through the internet) with fewer middle men and a little more margin.
Why bother having another business at 70? “I categorically don’t believe in retirement.”
He says he loves mixing with young executives, having the opportunity to give them some input, having a drink with them. He appreciates the cut and thrust of business today and thinks being involved in some way can’t but help with his longevity. Some of his friends are not as driven. He knows of two who are planning to close their businesses in the New Year.
If you are heartily sick of your business, you should get out now, says Grant Raynor, director of corporate advisors Domain Associates. “If your heart’s not in it, you start to become sloppy and you lose goodwill with clients,” he says. At this stage people might put in a manager to keep things ticking along, but the business will never be the same, he says.
As an alternative, don’t rule out continuing to hold on to your business but outsourcing some of the stuff which drains your passion, he says. Bring someone else in or get a consultant to do that part of it and focus on elements of the business you enjoy.
Meanwhile link your business planning, succession planning and retirement planning, he urges. “If you sell the business before you have worked out your retirement plan, it’s trickier. Once the golden goose is gone, it’s laid all the golden eggs.”
There is, of course, only so much planning you can do. Raynor had a client who hemmed and hawed about selling, decided not to, and then had a stroke. His family members put their collective foot down, said to sell the whole business, and consequently it was sold at under its true value.
Ironically, Raynor says getting your business ready for sale is a bit like confronting mortality. He suggests looking at the possibility of consulting for the firm or sitting on the board, in an effort to remain active and involved.
Courtesy of My Generation.