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According to recent US research, 61% of SME business owners expect to exit their companies in the next five years. That's the highest proportion of owners planning to exit the researchers have ever seen. This trend will likely emerge in Ireland also, for various reasons.
The first question you need to ask is how much money do you need each month to fund your retirement? You deserve to at least be able to enjoy the same lifestyle level as you currently have. This will in general come from two sources – your pension pot and the sales proceeds from the business. Once you know how much your pension will give you, this will determine the price you need to get for your business.
There are other reasons to also consider a sale. It could be that you believe you have brought the business as far as you can, and that it is time to let someone else bring their resources to the business and bring it to the next level.
It could also be a lifestyle choice. You might decide that you would like to cash in on your efforts now, and continue to work as an employee either in the business or elsewhere.
Covid 19 restrictions have also negatively impacted on the cash flow reserves of business owners. Rather than remain self-employed, some business owners may decide to sell or merge their business, and re-enter the employment market. Others may have no choice, and unfortunately business closures are inevitable in the coming months.
Value
When was the last time you considered the value of your business? Have you considered who might buy your business? Some business owners never consider this question and have no exit or succession plan. They regard the value of the business to be linked to them personally, and in a lot of cases, when they retire, the business winds down. Value is lost and worse than that, this means that they are reliant on the pension and savings to fund their future lifestyle.
Preparation is key. Just as you have spent time and effort in building the business to where it is today, so too should you carefully plan your exit strategy.
Firstly, you should consider the value of your business today. Get a professional valuation from us to assist you with this. This will tell you if the price meets your expectations or requirements. If it does, then great, you are one of the lucky ones and you can begin the process. However, for most business owners, the valuation is not high enough.
We can assist in identifying the area where improvement is needed to bridge the “value gap”, and to prepare your business for sale. Sometimes it is that contracts need to updated or even put in place. In other cases, it can be that the business is too reliant on one individual (usually the founder) and there isn’t the management team or structure to support a change of ownership. There are a few key valuation drivers of every business, and by making a few changes to the way you run your business, this can have a significant impact on the business valuation.