Part 4 in our Practice Readiness series
You may not be in this space right now, but I still hope you find this information helpful.
Maximizing the value, selling price and net proceeds from the sale of your business requires planning and foresight. It also typically takes time to implement value enhancements, saleability preparation and tax minimization strategies. That is why it is imperative to have an ongoing Practice Readiness / Exit Planning strategy in place at all times. It’s the cheapest insurance policy you will ever invest in!
Do you know the answers to these questions?
- What your business is currently worth?
- How saleable or attractive it is?
- What are the most critical value drivers for your business?
- Who might or what type of buyer will most likely be interested in buying your business Private, Corporate,
- Possible Partner or Investor?
- How to make your business as attractive as possible to that buyer?
- What changes you need to make in order to get maximum value?
- How much tax you’d pay if you sold your business?
- What strategies could minimize the taxes you’ll have to pay when you sell?
- Do you know the net figure you will be left with after the sale?
These are just a few of the questions you’ll need to answer before you can put a strategic plan in place to maximize its selling potential, value and net proceeds.
Practice Readiness / Exit Planning deals with all these questions and more to ensure the best possible outcome from your hard work as a practice owner.
Many principle owners aren’t aware that the value of a business is largely based on its performance in the three years preceding sale. That means the ultimate benefits you reap from the sale of your business will be driven by your efforts to maximize its performance (and profits) immediately prior to sale.
If your compensation is based on a multiple of your business profits or EBITA, every extra dollar of profit comes back to you many times over when you sell. This means as you approach the end of your business ownership marathon, you’ll need to pick up the pace rather than slow down. Sure, that requires additional focus and tenacity—but the extra commitment will pay huge dividends!
How Will You Ensure Your Success?
There’s a startling correlation between the number of business owners who achieve success in selling their businesses (less than 10%) and the number of business owners who have a formal exit plan in place (about 10%). And the difference in attractiveness, saleability, value and net proceeds for those strategically prepared businesses is often huge.
Which group would you like to be in?
If the biggest regret of business owners who have successfully sold their businesses is that they wish they had been better prepared, imagine the regret of those who fail to sell their businesses at huge discount or at all.
Following a structured Practice Readiness / Exit Planning process is the smartest investment of time and effort that any practice owner can make. Not only will it pay huge dividends in the value and transferability of your practice, but you’ll also sleep better knowing that you’ve done everything possible to ensure your full and just rewards of business ownership.
As I have stated earlier, if you want to succeed in selling your practice, being thoroughly prepared is absolutely essential. All it takes is one seemingly insignificant or overlooked item to kill a deal.
Conversely, when you’ve anticipated every detail and prepared well, the deal goes smoothly and you ultimately increase both business value and the speed of the selling process. It works like magic, and it’s one of the smartest investments a business owner can make to ensure a successful and lucrative sales transaction.
Top 10 Value Enhancement Insights
Enhancing the value of your business can be accomplished in many ways. The most strategic approach is to assess your specific practice and its unique value drivers against tried and true principles of value.
In the case of JT Gray & Associates we use Reverse Due Diligence and a comprehensive Information Memorandum to create a bullet proof Practice Readiness / Exit Plan which ensures premium value is recognised and of course there will be no mistakes or surprises down the track.
There are, however, some core business value factors that apply to most businesses. Here’s our Top 10 List of Insights for you to consider.
- Grow revenues and profits
- Have a proven and repeatable business development process
- Diversify your customer base
- Reduce your business’ reliance on one or a few key people–especially you
- Document your business systems and procedures fully
- Find the waste in your operations every business has them
- Reduce supplier dependence
- Eliminate unnecessary or obsolete inventory and equipment
- Get your books and records in order
- Top 10 Preparations for Sale Strategies
Our first recommendation in preparing your business for sale is to think about the Top 10 Value Enhancement Insights. Assuming you’ve already done that, here are 10 additional tips that will help you achieve the best results when it comes time to sell.
- Build a saleable practice
- Choose the right team
- Set the right price
- Thoroughly prepare for sale
- Have a professional marketing presentation and a comprehensive Information Memorandum
- Get your books and records in order
- Complete reverse Due Diligence
- Aim for confidentiality
- Manage emotions
- Hire a skilled negotiator
What is and Why Reverse Due Diligence?
Investopedia – What does Reverse Due Diligence mean?
Reverse due diligence can also be called vendor due diligence, sell-side due diligence or seller due diligence. It refers to when a company performs due diligence on itself to assess the company’s readiness for sale before being presented to prospective buyers. This ‘self’ due diligence is usually performed by a third party on behalf of the company.
Reverse due diligence can also refer to when a seller performs an analysis of a potential buyer to assess their ability to close the transaction and if they are suitable partners/investors/buyers. Just as potential buyers conduct careful evaluations of a selling firm and a target company’s operations, selling firms also initiate due diligence for potential buyers and offers.
Investopedia explains Reverse Due Diligence
Reverse due diligence, in the context of internal due diligence of the seller prior to a divestiture, would include quality of earnings, quality of assets, tax due diligence, commercial due diligence and operational due diligence. Vendor due diligence usually will not reduce the due diligence requirements or procedures of a prospective buyer. It may however, increase the efficiency of the buyer’s due diligence if all information required is organized, and more easily accessible.
Reverse due diligence, in the alternative context, is used to assist the selling firm in making strategic and informed decisions regarding the selection of prospective buyers, partners or investors. Reverse due diligence is important in situations when a seller is retaining a portion of its equity or receiving contingent or share consideration as part of the purchase price. In the context of due diligence on a would-be acquirer, the selling company would assess the strength of the acquirer’s balance sheet and the strategic plans for the target post-acquisition.
And last of all No BS
I can elaborate on each of the points mentioned in the 4 articles in our complete Preparation for Sale Practice Readiness / Exit Plan Starter Kit .
“Well that’s it in a nutshell” as they say. I do hope you have been able to gather a little more insight into the world of Practice Readiness and Exit Planning Preparation and why it is so important in this day and age.