Ultimately, who buys your business depends on what you have to sell. There are many ways to sell a business, but not all of them include the business as a going concern. For the business owner who has his business in good shape that might mean a nice clean trade sale – everything lock, stock and barrel.


However, there are many parts of a business that can be sold. The assets may fetch a better price and be easier to sell without the liabilities. But that needs careful planning, because if you were to sell off everything of value, you would need to make sure you received enough from the sale to finance any costs relating to employee entitlements and redundancies, leases, contracts and any tax obligations.


What about intellectual property (IP)? In our experience, this is often grossly under-valued by privately owned businesses. The formal definition of IP is an idea, invention or creative expression that is protected either by patent, trade secret, trademark or copyright. Interestingly, you might be surprised to know that it doesn’t have to be a long-standing trade secret like Coke’s soft drink formula, or a cutting-edge software application to be a significant business asset. It could simply be your manufacturing processes – the unique way in which your business makes its products.


Your customer base can be a valuable asset to a competitor. The size of your market share, represented by total sales is how a competitor is likely to calculate that value. If you are the market leader, or number two in your market, your customer base could well be a highly negotiable asset.


Do you have established distribution channels with solid agreements in place? If you do they might be attractive to a supplier. The value to a supplier will be calculated on the size of the potential to pump products through your distribution channels, to increase their sales, profit margins and market share. Depending on the size of your business, it might be a significant enough opportunity for a supplier to pay a premium, well above the business valuation.


A management buyout (MBO) is also worth considering depending on the capability of the management team and their ability to raise the necessary capital. An MBO is the purchase of a company by its managers, often with backing from a venture capitalist or, in some circumstances, the current owner. This option usually involves the owner remaining after transition, possibly as a consultant, and usually for a period of at least one year. The price you ultimately extract may even be tied to how the business performs for a period of time after the sale. This is often referred to as the ‘earn out’. You can mitigate the risks and protect the downside associated with an ‘earn out’ strategy – specifically how well the new management team operates the business – by having your advisors write performance criteria and other conditions into the sale contract.


If you decide to transition the business to a family member, keep in mind that you will most likely not achieve anywhere near the value for the business as you would if you sold to an outside party. To offset this, you could include future performance bonuses in the sale contract, where the business pays you an agreed amount when it achieves predetermined milestones.


Passive investors look for secure investments and provide the opportunity for you to sell down some of your shareholding, but retain control over the management and future direction of the business. Like any investor, the passive investor will need to be convinced that their investment in your business is secure, can grow in value and pay regular dividends.


Angel investors look for alternative investments that can provide a high level of return. Their objective is to make a profit. They can be a good option, especially if they can bring experience as well as cash to the table. In return, they will want to have some control over their investment, usually through a seat on the board. If the business doesn’t perform, their investment may be short term. And if they happen to be the majority shareholder, they may exercise their right to take control of the board and restructure the business. So tread carefully around angel investors, especially if most of your wealth is locked up in your business. Otherwise, you might end up being locked out altogether.







The transition process, from your first thoughts of selling through to moving toward the sale event, needs to be planned with precision and meticulously executed to ensure that the benefits and rewards are firmly in place.

We believe there are three essential steps that must be followed to transition a business to new ownership.

In last month’s edition of Accelerator, we covered the first step in the process ‘Strategy for Transition’ in the article titled Plan your transition before it’s time to exit. Managing for Transition is the next step in the transition process.

To enter into MFT the following objectives need to have already been established in Step 1. – Strategy for Transition:

1. The timeframe for exit
2. The value of the business now
3. The desired value of the business at the time of exit
4. The best method of transition

Managing for Transition is all about change management – the actual transition of the business from its current position to the desired position for a successful transition to occur. This will require fundamental changes in a number of areas, and the implementation of an integrated plan, which covers each particular aspect of the process needed to achieve your desired outcomes. We call this ‘grooming your business for sale’.

If you were selling a luxury motor yacht, like most of us you would make sure that everything was shipshape, in perfect working order and performing to its design standards. Selling a business is no different, albeit more complicated. But over time and with the right advice a business can be improved to the point where it will be attractive to a buyer.

To gain a better understanding of what is required in the Managing for Transition phase we have divided the process into four distinct areas of focus:

The goal is to move the financial performance of the business from its current level to the point that will warrant the necessary investment by the purchaser, to allow full realization of your value requirements. This requires the development of a strategic plan, with ongoing monitoring and reporting to ensure strategic priorities are being met.


The goal here is to make the business as attractive as possible through the removal of aspects, which will be unattractive or negative at the point of transition. Examples might be ensuring that key employee contracts and customer agreements are in place. No buyer wants to purchase a business on Friday, only to find out on Monday that key employees are leaving and taking customers with them. What’s more, the business buyer with the assistance of his advisors will carry out a formal due diligence on your business before the sale contract is signed off. After getting this far in the sale process, you don’t want a prospective purchaser walking away because he has identified a major problem. Action should be taken in the form of a set of contingency plans to mitigate any factors that may impact on the success of the sale.


Preparing the business and the team for change is critical to the continuity of the business. A buyer wants to see that the business can continue to generate earnings and profits into the future without being dependent on the current owner. To achieve this, process improvements should be undertaken wherever necessary and you should appoint a successor to take over your day-to-day operational activities (replace yourself).


This is the final stage of Managing for Transition – preparing you and your spouse for a life stage and lifestyle change. A personal financial plan needs to be prepared that covers life after business for both of you, including the preparation of wills, insurance policies, personal investment strategies, estate planning advice and expert tax planning advice.

Properly managed, you can expect improved revenue benefits through the whole process of managing for transition - not just at point of sale.

Managing for Transition takes time. Often up to three years, but when successfully accomplished, it can set you up well for the future. And you won’t be reaping the rewards only at the point of sale, you will also benefit from the increased revenues generated through improved processes during the years in between.

There are many organizational, people and technical challenges that have to be overcome when your business enters this phase of transition. This is the time when it pays to invest in the advice and guidance of an experienced business transition specialist.