Getting great returns on your business sale online version

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This presentation is for any business owner planning to build and sell their business, or simply wanting to increase its value. More than 40% of business owners will try to sell their businesses over the next five years as a result of the baby boomer generation going into retirement and it is absolutely imperative that if your business is to received its deserved "return on investment" that steps are taken now to make the buisness attractive and desirable for potential purchasers.

This workshop covers:

1. PLANNING AHEAD: How will key industries evolve over the next five years. Some tools to assist you with strategic foresight.

2. UNDERSTANDING THE MARKET: when is the best time to sell? Understanding how a business is valued, and the difference between a strategic investor and a owner / operator buyer.

3. PREPARING FOR SALE: what strategic and tactical actions can you take to improve the value of your business prior to sale.

4. FINDING BUYERS: A guide to making the most of the acquisition process, ranging from defining your target audience through to buyer due diligence.

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Getting great returns on your business sale online version

  1. 1. Mark Ostryn Knowledge 2020 Pty Ltd September 2010 http://www.knowledge2020.com GETTING GREAT RETURNS ON YOUR BUSINESS SALE (EDITED ON LINE VERSION)
  2. 2. About You  Your industry?  Your biggest challenge?  Your timescale to exit? www.knowledge2020.com - October 2010
  3. 3. First, the bad news - In Australia, (like the rest of the world) business values are, on average, falling. www.knowledge2020.com - October 2010
  4. 4. Why?  Baby boomers retiring en masse  Lack of availability of bank credit  Economy recessionary tendencies ( .. or fear of)  Performance hurdles on full sale price being introduced  Less barriers to entry for start & build rather than buy. www.knowledge2020.com - October 2010
  5. 5. The Australian Age Wave 40000 35000 30000 25000 Baby Boomers 20000 Post WW2 15000 TOTAL 10000 5000 0 2005 2010 2015 2020 2025 2030 www.knowledge2020.com - October 2010
  6. 6. “A tidal wave of family business sales will occur in the next two years as baby boomers look to sell up and retire” SmartCompany – 28th July 2010 www.knowledge2020.com - October 2010
  7. 7. The key to doubling the value of your business is..... Recreating your business so that a “dream purchaser” will want to pay top dollar for it. www.knowledge2020.com - October 2010
  8. 8. Today’s Agenda SELLING – STRATEGY – Marketing, Anticipating negotiating & buyers needs & closing SELECTION– defining Most valuable company subset of around them potential buyers. www.knowledge2020.com - October 2010
  9. 9. Factors Affecting Value Type of Income – Growth v New business or nurturing customer Stability base? Profit Margins Can it be improved on? Stability Time in business? Growth? Competitive Advantage Reputation? Customer Base? Barriers to entry? Industry Lifecycle Relative maturity? Potential to capitalise on growth? Reliance on Owner operator How well run currently? How reliant on current owner? Anticipated Effects of Market Macro economy? Demographics? Change www.knowledge2020.com - October 2010
  10. 10. Strategic Buyer www.knowledge2020.com - October 2010
  11. 11. Why will they pay top dollar? www.knowledge2020.com - October 2010
  12. 12. Why Strategic Buyers Buy www.knowledge2020.com - October 2010
  13. 13. Sale to BigCo –Tom McKaskill  Products or technology opens up a market for BigCo.  BigCo large client base buying my product.  BigCo selling their products to my customers  BigCo modifies my products for widespread penetration.  My products / customers allow BigCo to access new growth market www.knowledge2020.com - October 2010
  14. 14. Part Two - Strategy SELLING – STRATEGY – Marketing, Anticipating negotiating & buyers needs & closing SELECTION– defining Most valuable company subset of around them potential buyers. www.knowledge2020.com - October 2010
  15. 15. Creating Creating Doing the Competitive Value Deal Tension www.knowledge2020.com - October 2010
  16. 16. Six Strategies www.knowledge2020.com - October 2010
  17. 17. Future Vision www.knowledge2020.com - October 2010
  18. 18. 2010-2015 – Richard Watson www.knowledge2020.com - October 2010
  19. 19. www.knowledge2020.com - October 2010
  20. 20. Major Trends a self-fueled cycle of learning that could be as significant as the invention of print. www.knowledge2020.com - October 2010
  21. 21. Education – Future Considerations www.knowledge2020.com - October 2010
  22. 22. Changing New Market Government Consumer Entrants Trends Requirements Supplier Power Your Company & Buyer Power Your Competitors Technological Legal, Social & Substitutes Environmental Trends Trends Michael Porter’s Five Forces Model - Adapted www.knowledge2020.com - October 2010
  23. 23. Customer Empathy www.knowledge2020.com - October 2010
  24. 24. Nasty sound on front right side of car .. www.knowledge2020.com - October 2010
  25. 25. Customer Retention  Satisfaction = Retention  Average company loses 20% of its customers each year  Acquiring new customers can cost 5-10x as much as satisfying existing ones.  The customer profit rate tends to increase over the life of the retained customer.  80 /20 Rule www.knowledge2020.com - October 2010
  26. 26. Value Curve -Wine LOW HIGH Enological Terminology in wine communication Above the line marketing Aging quality Vineyard prestige and legacy Wine Complexity Wine range Easy drinking Easy selection Below the line marketing Price Budget SOURCE: Blue Ocean Strategy - W. Chan Kim and Renee Yellowtail Premium Mauborgne. www.knowledge2020.com - October 2010
  27. 27. The Customer Service is the Brand www.knowledge2020.com - October 2010
  28. 28. Theodore Levitt – Success Through Differentiation www.knowledge2020.com - October 2010
  29. 29. Problems PROBLEM Speed and cost of patent registration & approval process Food freshness Foreign ownership of food companies Mobile businesses unable to accept credit card transactions Smelly, dirty, portaloos Pizza’s tasty, but bad for you www.knowledge2020.com - October 2010
  30. 30. Solutions PROBLEM SOLUTION Inovia IP Speed and cost of patent Automate the process of registration & approval process filing different patents in separate countries Aussie Farmers Food freshness Free home delivery service Direct Foreign ownership of food for Australian made fresh companies goods – minus middleman. Mint Wireless Mobile businesses unable to Mobile payment solutions – accept credit card transactions PDA’s to process transactions, print invoices etc. Viking Rentals Smelly, dirty, portaloos “Dunnies with Dignity” Pizza Capers Pizza’s tasty, but bad for you Healthy pizza with tasty, innovative toppings. www.knowledge2020.com - October 2010
  31. 31. Drive for Profitability www.knowledge2020.com - October 2010
  32. 32. Ways to Grow A Business SOURCE: Keith Abraham www.knowledge2020.com - October 2010
  33. 33. Potential Revenue Sources Complementary products Packaged bundles of product Upgrade revenues Support revenues Training revenues Service revenues Licensing revenues Consulting revenues Accessory revenues Installation revenues www.knowledge2020.com - October 2010
  34. 34. Overall Profitability – A Quiz  If your business:  Increases sales by 4%  Decreases cost of sale by 4%  Reduced expenses by 4%  What is the resulting % increase in profit? www.knowledge2020.com - October 2010
  35. 35. 76% www.knowledge2020.com - October 2010
  36. 36. Incremental changes lead to larger bottom line changes Existing Movement Result Sales $1,000,000 4% $1,040,000 Cost of Sales $500,000 -4% $480,000 GROSS MARGIN $500,000 $560,000 Less Salaries & $400,000 -4% $384.000 Expenses EBIT $100,000 +76% $176,000 www.knowledge2020.com - October 2010
  37. 37. Order Recorded Order Fulfilled Cash Invoice Issued Retainer Revenue Received Payment upfront Receipts Invoice / statement / records mgmt Payments (Customer (Raw Materials, Payments) Credit checking Labour) Follow ups Interest / discount Raw Materials Goods WIP Produced www.knowledge2020.com - October 2010 Finished Goods
  38. 38. Part Three - Selling SELLING – STRATEGY – Marketing, Anticipating negotiating & buyers needs & closing SELECTION– defining Most valuable company subset of around them potential buyers. www.knowledge2020.com - October 2010
  39. 39. Strategic v Financial Sale Sale Value Strategic Sale Projections & Enthusiastic Buyer Historical EBIT Liquidation Value 0 500,000 1,000,0001,500,0002,000,000 www.knowledge2020.com - October 2010
  40. 40. Competitive Tension  In order to create the  Venture Archetypes, right conditions for a sale, Heat Formula: the firm needs to satisfy two conditions;  have time on their side  have more than one potential buyer.
  41. 41. Sales Process Enquiry 1 Page Info Other Qualify Interest Business Yes No Record Confidentiality Database Agreement Information Memorandum Questions Negotiations Indicative Offer Formal Inspection & Due SOURCE: Offer Meeting Diligence Peter Hickey, with Owner Sale Sell BizPro Contract www.knowledge2020.com - October 2010
  42. 42. Shorter Term Strategy  Eliminate inefficiency &  Draw up list of potential wastage acquirers  Benchmark performance  Industry acquisition  Programme for activity monitored continuous improvement  Business plan & budget  Senior management used and updated. succession plan  No potential stakeholder  IP / Contracts formalised litigation – employee, & can be assigned. customer, supplier.
  43. 43. Process  Approaching targets  ISSUES: Competitors, confidentiality, use of brokers  Broader marketing  ISSUES: As above  Documentation, Negotiation & Due Diligence  ISSUES: Trust, confidence, rapport, vision  Sale & Post Sale  ISSUES: Value, terms, post sale commitment, transition, fate of other stakeholders. www.knowledge2020.com - October 2010
  44. 44. Framework for Due Diligence www.knowledge2020.com - October 2010
  45. 45. SOURCE: www.knowledge2020.com - October 2010
  46. 46. Alternatives to Selling  Family Succession  Employee Buyout  Partner Buyout www.knowledge2020.com - October 2010
  47. 47. SOURCE: www.knowledge2020.com - October 2010
  48. 48. How Knowledge 2020 Assist www.knowledge2020.com - October 2010
  49. 49. For More Information  Direct - Mark Ostryn  0411 742400  markostryn@knowledge2020.com  www.knowledge2020.com  On Line  linkedin.com/in/markostryn  twitter.com/markostryn  markostryn.wordpress.com/

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