Why you should always be ready to sell out

Greg HayesSuccession is an event that will face every business sooner or later.

 

One day you will sell your business, merge it with another business, introduce new shareholders or perhaps transition the business to the next generation of your family. It’s only a matter of time.

 

When you are in the start -up phase all of that can seem like a long time away. The focus is on getting the business up and running and hopefully managing the growth curve.

 

Succession sounds like a retirement phase so why spend any time on it at the beginning?

 

Don’t equate succession with retirement because that is only one trigger for a succession event.

 

When we talk about succession we are talking about succession of the business.

 

Increasingly more and more business owners are going into business with a defined timeframe for their involvement. They may have a three, five or 10-year timeframe and they know when they want to be out of the business.

 

It’s then time to take the money and move on to the next business. Irrespective of your timeframe the key is to begin with the end in mind.

 

Too many business owners come to a time when they want to succession their business and only then start looking at what needs to be done to be make it succession-ready and to achieve the best result.

 

At that stage housekeeping becomes important. Any potential buyer or investor, if they follow the history of the business, will be able to see what has happened.

 

If you set your business up the right way and manage it the right way you will always be business-ready and that means succession-ready.

 

The most important part of being business-ready is to have clear expectations for your business, to measure performance and to manage your direction to continually improve that performance.

 

A starting point is to understand your industry. Having performance benchmarks for your industry will allow you to identify what the really good businesses in your sector can achieve.

 

And that is what you should be aiming for – doing what the very best businesses do. That could be measures of stock turnover, liquidity management, floor space utilisation, labour cost to revenue, gross profit and net profit returns. It will vary from industry to industry but they exist for everyone.

 

Once you know what to aim for you can go for it. The management of your business is not just about activity and being busy, it’s about working to a plan with clear performance targets in place.

 

Once you have targets in place you can build performance targets for people working in the business.

 

Targets need to be realistic and there may be a timeframe to move from where you are to where you want to be. There should always be a clear direction and your trend lines should confirm that you are moving toward your target.

 

A new financial year is a great time to start working on that if you haven’t already. You need to set budgets for the year and put business plans in place.

 

Include in that clear performance targets for the business that are based on your industry segment.

 

To do that you need to know what is being achieved in your industry and what is possible, performance measures that make sense for your business and what are reasonable expectations for the next 12 months.

 

One day you will want to sell your business and being business-ready makes sense.

 

Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.

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