Thank you for joining me for this episode of FWRD Thinkers Podcast. It is my mission to find and interview leaders thinkers and visionaries to help you Connect, Retain and Thrive in your small business.
Today I'm joined by Paul Adamson, director and licensee for Finn Business sales, Perth South, to share some pearls of wisdom about the steps you can take to get your business ready for sale in order to achieve a fast sale for maximum profits.
Paul Adamson – Finn Business Sales
paul.adamson@finnbusinesssales.com.au / 08 61022200
Podcast Transcription:
Frances: Welcome to the FWRD Business Thinking podcast and thank you for joining us. It is my mission to find and interview, leaders, thinkers and visionaries to help you connect, retain and thrive in your small business.
Today I’m joined by Paul Adamson, director and licensee for Finn Business Sales in Perth South. Finn Business Sales are a franchise group and the largest broker network in Australia.
Paul himself has a varied background including a 13 year stint as an officer in the army. And more recently his focus has been as an owner operator of a number of small to medium enterprises. Some of which supported the resources sector both in Australia and overseas.
As he looked for the next opportunity to deliver his passion for supporting small business operators. He found a perfect alignment with business sales and business broking. He’s here today to share some of his top tips about how to get your small business ready for a future sale. Thanks so much for joining us. It’s a pleasure to have you here today.
Paul: Pleasure is all mine. Thank you very much for having me.
Frances: Now we operate in the small business sector and we understand that preparing people’s businesses for sale is something that typically a small business owner doesn’t think about early enough in the game.
Paul: Not at all. We get a range of people coming through the door, some have been planning their exit strategy for many years and are best prepared to exit. Other come to us with an urgent need to get out now having done no preparation.
Frances: Why is it so important to consult the services of a business broker and start thinking about these things really early on in your business journey?
Paul: We do like to engage with business owners well in advance. Perhaps they’re looking at exiting in two to three years’ time. It might be that they just need some assistance with how they’re going to go about that process. How do I prepare my business? What should I expect during the process? Most of my business. Yeah we like to I suppose educate, guide, and assist people from as far out as we can.
Frances: That’s your opinion and it’s never too early to start thinking about your exit strategy.
Paul: Not at all. Not at all. Every business coach you speak to in every business, I suppose senior business manager will tell you, have always start with the end in mind. Always start with an exit plan.
Frances: Absolutely. Who do you like to support most? What kind of businesses come to you. What the standout business is? What’s your kind of passion area?
Paul: I don’t have a specific preference for a type of business. I think in my role where we don’t specialize in a particular industry or market segment. It helps create more role and my entirely activities interesting. Having that you about having a diverse range of businesses that come to me, it might be a hairdresser; it might be something in the fabrication industry. There’s always something to pave more interest.
Frances: Absolutely. And what’s typically is there a pain point that they come to you where, what situation are people in typically when they seek services with a business broker?
Paul: I think it’s that they don’t know how to proceed. It’s a case of I’ve made a decision to sell my business. How do I do that? Who do I need to get involved? What do I need to do with my business to prepare it, to make sure that it’s actually worth something to someone that mind people on a business.
Frances: Absolutely. And what would you say is the conventional wisdom about business breaking of business sales that’s just plain wrong or misconceptions?
Paul: I think at this stage I’m getting a lot of feedback from buyer inquiries. They’re quoting their banks and their accountants and they are indicating to me that no one is paying for goodwill these days. Well the banks aren’t lending goodwill these days. That is an absolute misconception. It’s wrong. Banks are lending against purely goodwill in a business and they’re lending up to 50 percent in most cases. They’re not throwing money away. It still needs to be a good return on investment for the bank and minimize their risk in lending the money. But they are certainly lending money at the moment.
Frances: I mean when you say that with their shift in the economy at the moment that there is more of a focus on developing strong, small, medium-sized businesses?
Paul: I think so. I love for the government to be doing more about supporting small business. But small to medium business are the backbone of the economy and they must be supported. The people that operate those businesses must understand the impact that they have on the total economy not just their backyard they might be this small or a patch of clientele or their industry their working.
Frances: When it comes to your clients is there certain myths or certain misconception is that they have about maybe what their business is worth or their role in the business or just lack of understanding about how it works?
Paul: Yeah I think a lot of business owners are happy with the status quo within their business. What we’re seeing is a lot of business owners. When I speak to them they’re selling their business I asked them what were the opportunities in this business? What would you do if you were to keep the business for another five to 10 years? I find those things that a new owner might implement in order to improve the business. And very often they come up with a long list of items missing. Why didn’t you do these things yourself? Because by doing those things yourself you would have had a positive impact on the value of your business which is now going to market.
Frances: Absolutely. Tell us about the issue where typically the small business owner being such an integral key part of business but it’s difficult for them to they’re the one that’s leaving.
Paul: Yeah there’s no doubt Frances that the small business operator who has a business that is all about them. All of the goodwill is associated with them, their knowledge, their relationships with their clientele. It is an issue. What we tend to try to assist business owners with is from getting in early enough is advise them to start bringing in someone to assist. It might be an assistant manager, put in a manager who can go with the business. When it does sell. Yes. So that in selling the business then coming out and leaving a massive hole in the business won’t have as big an impact on the business going forward. Of course that has an impact on the interests that a potential why and what happened in the business and what they’ll pay for.
Frances: Fantastic! What are some other step by step starting points that people can start to think about implementing in their business so they don’t have to do all in a rush when they need or want to sell?
Paul: Yeah I think this is something we see a lot of we walk in and we ask people, can you provide us with this? Let’s talk about that and they just look at you with a closer look sometimes unfortunately. But what we always say is that. People need to start preparing for the sell of their business or preparing for the exit of their business well in advance. It makes good business sense a lot of things that we’re asking people to do. We’re talking about being on top of your finances, making sure you understand what’s your pay analysis, what you’re earning every year, every month from what your break-even is. Too often we speak to people who just have no idea what numbers they’re doing and what they mean or they’re just happy that there’s money going in their bank.
But finances is one, getting their systems in order. It is very important. Those are the systems which for part of goodwill in their business. Having that documented and being able to pass it on to the new owner is very important. And that’s what they’re paid for. Yeah I think also very often I speak to businesses who indicate that they’ve got a client database. Now that client database in some cases is a big load of business cards. It might be that they’ve recorded I suppose a snapshot of information on their clients and it might be an Excel spreadsheet.
Frances: Typically out of date.
Paul: Exactly. Having that in a CRM database or something that has more utility and that the new owner can step into and start using is very important.
Frances: People need to understand that an Excel database and access to your Outlook account is not intellectual property. It’s not something tangible a new owner can run with and actually start to operate a successful business. Far too often I say my business very few all of them are actual property around our clients in their hands or in their diary and also in that team’s heads and diaries. And when they lose a member of our staff, or someone’s on holiday or sick, it’s really difficult for them to pick up and run with the business as it is. You have to learn passing that over to a new management or new owner structure.
Paul: Absolutely. And it is a lot of the pushback that we get from inquiries is all this information is in the in the owner’s head. How am I going to get hold of that? And all of that experience they’ve had over the last 10-20 years.
Frances: And are they receptive to implementing systems like that. Do they understand how that can improve the value of their business?
Paul: Mostly, what you do get the idea to be on vendor who doesn’t wish to do too much to improve the business. They’ve made the decision to exit and that’s what they want to do. And that’s exactly right. They will take it. We do find a lot of vendors who when we asked them to keep investing in their business and it might be putting an extra people going after those contracts might be securing your staff on better employment contracts.
Frances: And presumably notifying them about your intentions and getting them on board with the sales process as well.
Paul: Yeah, exactly. A lot of business owners are very cagey and very fearful. I think of telling their staff that they are on the market. Yeah mostly I suppose that reaction tends to be around the fact that they’ll think, oh my gosh these people will lose their job that they’re thinking that they’re selling the business.
Frances: So they jump before they…
Paul: Exactly yeah. But the very fact is and the thing that I always tell business owners is at the end of the day when there is a transition. Most people buying a business don’t turn up on day one with their entire team ready to go. What they are really looking forward to doing is hitting the ground running having that continuity with the staff that are in place because those staff are the ones that have a lot of the IP. They know the clients; they know how the system is running, the supplier, networks and all the rest. Really an employee should play take on board that they’re a very important part of this transition process.
Frances: Fantastic. What are some other tips? What are the other things that people should start to consider early on. Or what are the things that you would typically work with a client to help them achieve?
Paul: Yeah I think it’s important for a business owner to always engage paid professional support in the form of their accountant making sure they’re getting the right advice from their accountant all the way through because the accountant is a wealth of knowledge. And they have a lot of products and services that typically a lot of business owners don’t understand they’re available. They can really make their life easier in business that can help to turn around the business, improve the business. Similarly further professional advice in solicitors. Have them look at your employment contracts. Yes they do cost. But you find the right solicitor, someone you’re happy with and you generally get some very good outcomes.
Frances: This is all about return on investment and the amenity that you’re spending upfront in implementing quality systems and seeking quality advice and getting new members and staff in place. It will come and do it right and you take the right you all feel that return.
Paul: Yeah, absolutely.
Frances: Why is the number one reason that most people fail to succeed in achieving a successful sale?
Paul: I think it would probably be. I mean there are a range of options in selling a business. One which involves me, use a business broker. They can sell it themselves; they can sell it through a real estate agent. We all hold our real estate agent’s license so I could sell real estate if I wish. I don’t want to do that. I specialize in certainly selling a house compared to selling a business is two completely separate things and different processes, due diligences is done by one area of change or difference there I think selecting the right path to sell your business is very important. A business broker knows the market. They can price the business at the right market price. They can advertise it and sell it for you. You don’t need to be involved in the day to day management of inquiries and dealing with people that are wasting your time on something that we know will buy and some that we know won’t buy.
Frances: How many situations do you have where a business owner is required to stay on with the business following a sale, does that happen regularly?
Paul: It’s mostly in effect the gross number of sales would be an agreed period of the settlement where the business owner would retain, remain on their own site, or remain with the business. That might be two weeks. It might be three months, six months if it’s a more complex business. But in that time they’re handing over all their IP address. They’re training up the new owner. They are introducing them to their suppliers, their contacts, their contractors as well.
Frances: Presumably if they’re looking to reduce the amount of time that they need to be involved in that handover by implementing systems upfront, by documenting their intellectual property, creating business money that it won’t require them to be involved as much.
Paul: Yeah, absolutely.
Frances: And what are some specific roadblocks that people should watch out for when looking to sell.
Paul: I think it’s important to ensure that the business is prepared for sale, first and foremost. Now that is all those things you’ve spoken about your finances and your systems etc. but preparing the business on a couple of other fronts as well. And it’s simply doing your house work, making sure the business is tidy, it isn’t all of these issues around and the business looks, well yeah that’s exactly right. But also when it does come to selling your business, and most brokers would do it, provide a brochure essentially on the business.
Frances: Quality marketing.
Paul: Well that’s exactly right. Let’s say if you’re buying a Mercedes motor car you’d expect a pretty extensive brochure to cover that investment and with all of specs, all of it and all of the pros and cons.
Frances: Fantastic! What are some specific action steps that people can start taking today? What would be the very first starting points? Even if they’re not thinking about selling their business in the next year or two, what can they start thinking about for the future?
Paul: I think what we’re talking about before which is really getting a good grip on your business and having a good control in your business, making sure you understand your numbers. You get your systems in place, get on top of your debtors and creditors, train your staff and invest in your staff.
Frances: That’s right. When a buyer is looking for a business that has a CRM system implemented as an example, they are looking for something that has gotten established use. Obviously, it’s beneficial to implement the CRM just before selling if you don’t have anything but it’s much more preferable to have something in place for a period of time so that they can see that bracket had been working because they had to keep performance indicators coming together. They can see proven report history on how that’s worked to cross the team, an actual year on year growth or period on period growth.
Paul: Exactly I think you’ll CRM database is something that needs to be proven to the new owner that works just as the business. If they’re buying into the business they want to know that it’s going to work. They can see the historical data in the financial performance. They can see the reputations that it might have a market share. They want to see the site with their CRM database and make sure that they’re actually one, they’re using it. What was the outcome? Did it work? And what worked, what didn’t work? How are they targeting?
Frances: I presume that you see here a number of success stories come true of people that have worked really hard in a business for a number of years. They followed the advice to the latter and they produced a really successful sale. And presumably they are now living that life of freedom, afford some opportunities to travel and spend more time with their family. And I presume that from your perspective that’s the satisfaction that you get from a successful sale?
Paul: Exactly. It’s helping in the case of a business owner who wants to sell. They’re selling for a reason. It might be to retire. It might be to spend more time with the kids. It might be the businesses that want to focus or other ventures they wanted to move into.
I want to move into helping them get to their desired outcome. This is why I do what I do. Similarly you’ve got on the other side of the shop you’ve got buyer inquiries coming in the door. And one of those will be the buyer for the business. Now it is exciting because they’ve got a vision of what business ownership is where they want to take that business and they want to get to that business. You’ve got two parties wanting to get to that same point. And it’s very exciting. I suppose process.
Frances: Absolutely. Do you think that there’s probably some misconceptions from some buyers out there that have not run this before as part of your role helping them to maybe put this conceptions in alignment with reality?
Paul: Precisely. And I think we do get a lot of inquiries who come through and they’ve got fantastic backgrounds. They may have run businesses before or they might have for example being a project manager or know one of the projects up north perhaps and the set of skills that say look I don’t know if I can run a business I’ve never done this before. And then to speak to them about the tasks, the responsibilities they’ve had in the past, team management, dealing with suppliers, contracts, delivering on performance and KPI’s and all the rest. And when you sit down, let me say, or actually if you’ve got a good background to be able to run a business. There may be some gaps. I mean perhaps have never done marketing or understand business development. That’s a simple thing to do.
Frances: Yeah.
Paul: So you’re not putting them in touch with other people who can assist them in those factors of running a business, might be through a business coach, or the right accountant, or whatever it might be.
Frances: And you’d recommend that buyer starts looking at addressing those gaps in their experience early on before they actually make a purchase.
Paul: Well I think the first part is just identifying there is a gap and wanting to do something to fix it. Having a plan in place to fix it.
Frances: What are some resources that people could lean on if they were looking to start educating themselves, perhaps?
Paul: Certainly, going back to the paid professional advice, the advice of your accountant is it’s worth the money, it really is. But I think a quick web search could bring up a range of different resources and education advice to people looking to sell their business. Certainly on our website we’ve got a lot of downloadable brochures.
Frances: What’s the address for that?
Paul: www.finnbusinesssales.com.au But yeah we’re doing a lot of people download those brochures because it starts that education as I said at the very outset people don’t know what to do from this point. I’ve made a decision to sell, what next.
Frances: Have you read any good business sales books?
Paul: I think a lot of the value in what I’m reading is probably more from promotion business management books because it helps me to identify what the business owners themselves are going through and being able to help them. And it might be as I’ve done many many times, I don’t think your business is quite ready for sale. Perhaps you should read this book or can have a look at this, fix this part of your business and come back and let’s have a chat in six months, 12 months’ time.
Frances: I highly recommend the book ‘Built to Sell’. I’ve read it a couple of times and I think it’s a really great starting point no matter what stage in the process of thinking about selling your business and just start putting some action for stuffs into place.
Paul: Absolutely.
Frances: Great! Paul, I want to thank you so much for your advice and for your time. I really think that the audience is going to really start thinking about how they can take steps towards achieving a successful sale whether it’s soon or in the future. Thank you so much for your time. It’s been a pleasure.
Paul: Thank you.