Where does the Journey to sell my Business start?
It starts by you knowing how much of a fund you need to accumulate in the form of income generating assets in order to fund your desired lifestyle in retirement.
Wealth Advisers or Independent Financial Advisers can assist here. They use financial modelling to help identify the level of savings and/or investments required to meet your retirement aspirations.
Some people call this amount your “Magic Number”. Whatever you call it, it contains two different questions and the answers to these questions will determine the way forward.
So, what are the two questions?
- How much capital do I need for my retirement? and
- What is my business worth?
In my presentations I use a really simple example to illustrate this point. The numbers ignore costs and taxes and come with the caveat that I am not a financial adviser.
Let’s assume you need a gross income of £40,000 per annum when you retire. You will need an income generating fund of around £1million. If your adviser says your pension fund is currently worth £400,000 then, on the sale of your business you need £600,000 in your back pocket. There are lots of assumptions here to demonstrate the point and bear with me.
We reckon your business is worth £800,000, then the next question to answer is: Do we start to market the business now, warts and all, and see if there is an offer and for this amount?
However, if we reckon your business is worth £450,000, then you see you will be £150,000 short of the funds you require.
What do I do now?
There are several options:
- Do you look to invest in your pension fund and worry about what the business will be worth when the time is up?
- How long will this take?
- Do you sell up now and fund the shortfall by starting another business?
- How long will this take?
- Who will buy the old business?
- Who will buy the new business?
- Do I invest in the business to increase its value?
- How much is required?
- Will it sell at the end of the investment period?
These are not easy questions to answer. If they were we’d all be rich by the age of 30. Doing nothing will not really help you achieve your retirement goals.
In deciding which route to take you must really consider using a wealth adviser and someone like me. The wealth adviser will work with you to provide you with a personal financial plan using a model and taking into account your other desires such as expensive holidays, giving money away to your grandchildren and funding expensive hobbies – sailing for example. These one offs can be factored into the model. This way, you have a much better idea of what your future finances look like so you can start by deciding the best way to approach succession planning.
From my experience, I can look at your business in some detail with you and assess the likelihood of obtaining an offer and for what amount.
How long will this take?
You can see this is not something which cannot be acheived overnight nor with any certain outcome. These are the two reasons why I come across so many owners where neither they nor their businesses are ready for sale. The choice is yours – you are in the driving seat.
With around 10% of businesses advertised for sale actually being sold it is a hazardous route to embark upon and one which you really need to start on sooner rather than later in order to achieve your retirement needs, if that is what you want to do.
Many of the bushiness could have been sold had the right planning been undertaken at an earlier stage.
As a team, you, your wealth manager and I can help you onto this road.
I always believe there are two parts for preparing for selling your business:
- Psychological or emotional conditions – that is about you, the owner; and
- The tactical or practical side – that is about you and me.
Simply put; when and how.
if you would like to find out how ready you are then take a look at the Quiz
Once you have set out the “When” you can put the “How” or the succession plan into place.
I look forward to doing this with you.
In the meantime you might like to return to the Overview on this web site.
Andrew is the director of Assynt Corporate Finance Limited and an Accredited Member of the Association of Crowdfunding experts.
Previously a partner and head of corporate finance at Baker Watkin LLP, Andrew has more than 40 years of experience in all forms of corporate finance across many business sectors.
Andrew was the Chair of Governors at a local school for six years retiring in December 2020 and continues to be an Assessor of Expeditions for The Duke of Edinburgh's Award.
You can find out more and connect with Andrew over on LinkedIn.