Many people confuse selling their business with an exit strategy but the two things have quite different approaches so I thought I would write a few words about the differences. We will also look at what effect the two approaches can have on the outcome of a sale.
When you are considering selling your business you may approach a broker like myself at the beginning of the process. I will carry out a detailed appraisal of your business. I will look at a whole multitude of factors starting with the lease but then looking at the financial position (how profitable is the business), the staff, the intellectual property, the quality of the fitout etc. I will then come up with a reasonable estimated price range about what we could achieve for the business based on current market conditions and what is going on.
I don’t think I have ever carried out an appraisal on a business where I have not highlighted areas for improvement, development or growth, where a lot of value could be added to the business for sometimes relatively little effort.
It is at this point in the process that my clients face a choice. Do they sell now for what the business is currently worth or do they do the work needed to add extra value to the business? Often people are tired or ready to move on and they just want to sell for what the business is currently worth but others are happy to engage with an exit strategy.
It is amazing how much you can add to a business for relatively little work, reviewing the menu costing for example. Did you know that if you were to own a cafe that turned over $20k per week and you had a 33% food cost then getting it down to 30% and in line with industry metrics would put an extra $640 per week in the owners pocket but even more crucially it would add $65k in additional value to the business?
This is only one small example of several improvements that can be made and an exit strategy can take as little as three months or it can be up to a year. It isn’t just lowering food costs we also look at areas such as;
Labour costs, do you have a well-trained team capable of carrying out the day-to-day management tasks such as monitoring wastage, planning for busy times, monitoring rosters etc.
Are the cafe’s policies and procedures documented, enforced, and easily transferred?
Is the lease up to date and is your relationship with the landlord good?
Are growth opportunities being identified and implemented?
Is there anything nasty coming down the line that needs to be addressed before putting the business on the market? At the moment we are seeing many issues around deferred rent from COVID that vendors haven’t allowed for which is coming to bite them. There is so much more that I could list…
We sometimes of people who have become so reanimated by their business during this process that they decide they don’t even want to sell and that is a firm win. I have a colleague who had a client who approached him wanting to sell and decided to work on an exit strategy that turned into a coaching programme and now 4 years later he owns multiple venues and a central kitchen all at margins that would make most vendors jealous.
So I repeat the question, do you want to sell your business or do you want to exit?
If you are interested in learning more or would like to discuss your business please feel free to contact me directly on 0415 243 750 or by email at r.illsley@gsebrokers.com.au
Rob Illsley
