Now Is A Great Time to Sell Your Business – Here’s Why
It’s an easy assumption to make – that selling a business in challenging economic times will be difficult.
This is not necessarily the case. The outlook for the Australian economy through the early part of 2020 has offered substantial opportunity for business owners who are planning to exit. The same fundamentals of preparing your business for sale will apply, well presented, realistically priced businesses will find a buyer.
In recent months we have witnessed surprisingly strong business buyer enquiries. There has been some reluctance to go to market from potential business sellers who are incorrectly assuming there will be reduced business sales activity. In truth the market has been resilient, especially in the second half of 2020. As government stimulus moves from job preservation toward job creation, we believe that business sales activity will increase into 2021 and beyond.
Potential business buyers are likely to have one or more of the following needs to fulfil. The first two needs relate to individuals, the second two relate to other businesses looking to acquire.
Individual Need To Take Control of Their Future
It may sound counter intuitive but owning your own business can now offer greater security than being an employee. People who are finding it difficult to obtain a permanent full-time job have begun to look at purchasing a business as the best path to a secure future.
Fortunately for existing business owners this type of buyer is frequently well financed. For example older workers from a downsizing firm may have a large termination payment available or have a property that they can borrow against to purchase a business. Alternatively, younger people stuck in casual or gig economy jobs can turn to their concerned Baby Boomer parents for a leg up into a business. Another potential buyer is the new migrant buyer who might have trouble negotiating the recruitment processes yet may be highly technically capable in a certain field.
Classically owning your own business has always had a “Master of your own Destiny” objective, however, the current economic circumstances have made this the most viable choice for many individuals.
Individual Need for Career Satisfaction
This segment of potential buyers had a career mapped out with continual advancement in their chosen field. At some point they hit a barrier in middle or even upper management and begin to consider owning a business as a better option to realise their potential. This group is likely to grow in the next few years as companies squeeze middle management and the opportunities for a promotion reduce.
Typically, these individuals will look for a business with strong upside, perhaps one with an owner who is retiring. They will look for well developed systems and a well-trained team, but where sales or marketing opportunities have not been aggressively pursued recently. Businesses in manufacturing, wholesale or logistics will be in their sights.
Business Need for Cost Savings - Industry Consolidation
It is probable that more industries than normal will be facing the need to merge or acquire a business competitor to increase market share. This is of particular benefit where significant back office costs like payroll and accounting can be shared between the old and the new businesses. Competitors may be indirect, operating in a different geographic region. We are already seeing examples of increased consolidation in manufacturing, retail and service industries.
Business Need for New Revenue Streams - Pivoting
Businesses that have found their niche suddenly vulnerable will be looking for merger and/or acquisition opportunities. Many of these businesses will have retained profits and a management structure that will support the integration of a business from a related niche or up or down the supply chain. The buyer is generally looking for a combination of existing customer relationships in the new industry and an existing team with physical assets and systems that support a smooth integration.
A small-scale example would be a caterer whose core business has been heavily reduced looking to buy a food retail outlet to add a new revenue stream for its output. On a larger scale a residential home builder might acquire an excavation business to benefit from growth in infrastructure projects.
There are some unique challenges in the current market, in particular we have found obtaining finance to take longer than normal. Financial analysis for prospective buyers is made more difficult with the combination of sales irregularities and government incentives hitting Profit & Loss statements.
This makes it more important than ever to properly prepare your business for a successful sale. This task is best undertaken with the assistance of a specialised business broker who:
- understands exactly what today’s buyers are looking for in a business
- can communicate the narrative behind the business numbers to buyers and their advisors
- knows how to manage the sales process from appraisal to settlement
We suggest starting with a no obligation business appraisal to establish the appropriate price to attract the most appropriate potential buyers.