Can You Really Afford to Sell?
The sale of small businesses, in many cases; is event driven. It means that, often the selling reason is an event like health issues or illness, partnership issues, decline in business or even a divorce.
Way more difficult selling reason is when owner just wants to retire to live happily ever after. Below is the problem:
Let’s say that the two owners have a very successful distribution business. Each of them draws out $200K annually from business along with cars and other benefits. Now, if in this industry, the business is sold for $2M; the net proceeds will be $1.5M after taxes, debt and closing expense. It sounds good until you realize that the net proceeds are only about 3.5 years of income for each business owner exclusive of benefits like health insurance, cars etc. Now what?
The scenario above, is typical; especially in small businesses. These are solid businesses which provide very comfortable living for 2 owners. In above case, owners decided that they could not sell because it look economically sensible to them. That distribution business was worth much more to the owners than to any other outside buyer. Perhaps their idea was that business broker can produce such a buyer who will willingly pay far more than the business is worth but, the market of business sale is very efficient one.
So, what should these owners do?
The bad-side is that the competition can enter fray and the business will not bring-in the same cash flow.
The business can also suffer as the owners are not building it further, they are rather trying to retire towards an easier life. This mindset can drastically undermine the business.
It is very likely that the owners will not even receive the $2M which they were supposed to receive; if they are forced towards the sale of business due to its decline.
However, the retiring owners can bring a business manager into the business. This might cut their earnings slightly to pay for this new manager but, it will also cut down their responsibilities dramatically. However generally it is observed that managers do not produce as good results for the business as an owner operator can…..
Ready to sell? Contact CBC Business Brokers Sydney today on 1300 661 498 for a free strategy session.
CBC Business Brokers Sydney
Level 34, AMP Centre,
50 Bridge St,
Sydney NSW 2000
T: 1300 661 498