Handing over the reins of a business you’ve worked hard to establish is never easy. Here, legal professional Peter Cox shares his tips on what to consider, and how to make the transition a smooth one.
For any privately owned pest management operation, somewhere down the track, there will come a time when the current owner will want to exit the business – “the changeover” will need to take place, so the business can proceed under new management. There are two ways to approach this conundrum, the rational professional way, or the panic, unorderly method.
Management succession would rate as one of the top five decisions made in business. It is interesting that often, the more highly successful the pest control company – four of the key indicators being sales, margin, cash cycles and net profit – the more difficult it can be to sell the business. Sometimes the proposed purchase price can be too high.
Typically businesses are either retained within the family or attempts are made to sell to an external buyer.
In relation to family owned operations, there is often the desire to keep the business in the family. Although that may be the desire of the current owner, there are two common hurdles to overcome to meet these wishes.
Firstly, other members of the family may not want it. Why? We all like to whinge, but excessive gripes by the owners over the years may have given their children a negative view – why would one want to go through the same thing in the future? It’s important to present a positive image of the business, at all times, as you never know who the potential buyer might be (inside or outside the family).
In other cases, the success of the pest control business may have allowed the owners to send their children to university (an opportunity they may have missed out on themselves). The result often provides the children with other career prospects that are not compatible with running a pest management operation.
A second common hurdle is that even if a child or other family member does wish to take over, sometimes the existing owner finds it difficult to let go and won’t let the new owner make their own business decisions.
But in other cases the opportunity to keep the business in the family is very much on the cards, with children or other relatives keen to take over the business, seeing it as a great opportunity. If children wish to take over the business, with a longer-term vision, one consideration is to encourage the children to work outside the business for a couple of years (not necessarily in pest control businesses), so they come back into the family business with a broader skill set and a different perspective.
If you have made the decision to put the business up for sale, it’s probably best not to just keep your fingers crossed, hoping that someone will just come through the door and say “I want to buy your business”, although it has been known to occur (especially in the current climate of acquisitions).
Here are some considerations when preparing to sell:
- Use a CPA or CA to put together the “Special Purpose Financial Report” to present the business accurately and include additional information that may influence the sale price.
- Set a timetable for the sale process. Sometimes this can be a protracted process, especially if the decision is to offer the business for sale to trusted employees. This is becoming a more common method in that employees actually salary sacrifice and pay in advance against a set value. Of course the value needs to be of a fair and calculable nature, just not a number picked out of the air
- Do you include the buildings in the sale? Most vendors do not sell the building for two reasons; firstly it can be cost prohibitive to the purchasers and they may already have a premise and secondly the building is often part of the superannuation plan for the seller.
- What is the handover process? The final step in the process once the sale price has been agreed to is for the seller to offer to the new purchaser their services in a transition period to show how the computer system works, meet the important customers and cover off the important day-by- day transactions.
When selling a business, there is more than just putting an advertisement in the paper saying “Business for sale, multi million dollar profits, no financial information available!”