According to 2021 figures from the Australian Bureau of Statistics, 97.4% of Australian businesses are classified as ‘small businesses’, with between 0 – 19 employees.
That’s 2,314,647 businesses across the country!
The numbers don’t lie, and here at Hub Advisory Group we believe that small business is the backbone of Australia and crucial to Newcastle and the greater Hunter Region.
This is why we offer a suite of services to support and advise everyday business owners, throughout their financial journey, including when it comes time to sell their business.
As a business owner you’ve worked hard and built a legacy; created employment opportunities and built trust with customers and clients.
Now is the time to capitalise on all that hard work and here are some tips on making the most from the sale of your business.
PREPARATION With most things in life, preparation is key. The more prepared you are for the sale of your business the smoother the process will be and the more successful you will be in landing the right buyer.
Documentation Financial records, business structures, marketing plans and assets, and customer databases are just some of the documents you will need to have available. Ensure these are accessible and presented in a professional manner.
Timing This is a big decision and one not to be rushed. Working with a trusted advisor up to 12 months out from your ideal sale date will have benefits and see a streamlined approach. There may also be seasonal and economic trends to consider when timing the sale of your business – always look ahead and do your research.
VALUATION It can be very difficult to contemplate what your business is worth – particularly a family run business. Your blood, sweat, energy, tears and achievements are priceless.
By taking some of the emotion out of the sale and taking a considered approach to the valuation you will have more success attracting potential buyers.
The capitalised future earnings method is frequently used when valuing small businesses. The future earnings of your business are ‘capitalised’, or given an expected value. The capitalisation value gives an expected rate of return on investment (ROI), shown as a percentage or ratio.
The following example from the Commonwealth Bank Business Banking website explains this method further.
Work out the business’ average net profit for the past three years. Take into account whether there are any conditions that might make this figure hard to repeat
Work out the expected ROI by dividing the business' expected profit by its cost and turning it into a percentage
Divide the business’ average net profit by the ROI and multiply it by 100. Use this figure as the value of the business
For example: Melanie is considering buying a bakery with an average net profit of $100,000 after adjustments. He wants an ROI of 20%. He divides $100,000 by 20% and multiplies it by 100 to get a business value of $500,000.
PROFITS Congratulations, you are about to enter a new stage of your life. Maybe you’d like to take a holiday? First, let’s ensure that you are aware of any taxation implications or obligations you may have and a solid financial plan in place so that you can enjoy this next chapter and a well-earned break.
If you are considering selling your business, together we can build an action plan, a strategy to address your wishes for the sale of your business that also meets your financial goals into the future.
Give Hub Advisory Group a call on (02) 4926 8000 to discuss this process further.