HOW TO SELL YOUR BUSINESS

Hi Bloggers, today's piece, without any further ado is by Mark Corke (www.suitegum.co.za).

It's a really good idea to take note of what he has to say, and if you can - attend one of his training sessions. Well worth the effort & money.

As I move around the small and medium size business world I have sole proprietors complaining about the heavily regulated South African business world: "Oh, I might as well work for a boss", they say, when I try to convince them to create some value for themselves by transferring the assets into a close corporation or company. I get pretty much the same stick when I suggest, in my seminars, that a cc should be converted to a (Pty) Ltd, and subject itself to the necessary audits in order to generate some more wealth for the shareholders.

Do you see a trend developing here? Business owners are comfortable in their current misery! Moving into a new league is difficult, is painful, but bears fruit.

No Pain No Gain
I was invited to, what turned out to be, a sales meeting at the JSE last week. The Senior General Manager of Marketing and Business development at AltX, Noah Greenhill fielded questions from some fairly senior private equity players complaining that the requirements of listing on AltX were "onerous". Greenhill was trying to convince these private equity guys that the best way for them to exit was by way of an AltX listing.

To fully appreciate this situation, one needs to understand that one of the reasons that AltX was established in the first place was because it would provide a public listing platform which was less onerous than the main board of the JSE.

To lay out the global strategy; it works something like this:SME businesses are sold to former SME owners or entrepreneurial investors at a relatively low price to earnings (PE) ratio. Once that investor has added his value to the business, he sells it to other entrepreneurial investors or perhaps to a small private equity fund at a slightly higher PE ratio. The trick here is to leverage the value by increasing both the profit and the PE ratio achieved in the sale.

Private Equity funds now find themselves in a really exciting space. You see they have access to some really dynamic business science, lots of money to capitalise the business, and above all, an exit plan that is worked on from the day they take control of the business. When they sell the business, they add enormous value, generally as a result of having ramped the profitability, while simultaneously placing the business in a higher PE space. The buyer is traditionally a big institutional buyer, or bigger private equity firm. The alternative that Greenhill espouses is that rather than exit through an institution or big daddy, they should look to a listing, thereby exposing themselves to a much greater upside.

The point of the above illustration is really to show the hierarchy of business leagues that the better businesses will elevate themselves through. The common thread being that at all levels the entrepreneurs complain about the onerous barriers to achieving the next level. And yet somehow the best manage to survive the hardship, and thrive in the higher league.

This principle parallels our experiences in other areas of our lives. At the start of this year my son progressed from the under 14A Waterpolo to the under 16 age group. He desperately wanted to be in the A side, and so worked extra hard to make the grade; swimming before school most mornings, doing weight training and even running to strengthen his legs. He made the side, to his great relief, in the first term of the year. Through winter he carried on working, drawing on our continuing support as he battled the extra training, hopeful that he would be strong enough to play for the 1st side by the time he reaches grade 11. Ten days ago he was chosen to play in his first match for the school's first team - as a strong 15 year old. How did he manage it?

He identified the requirements, then dedication, hard work and a fair amount of suffering and complaining about how "onerous" the training was. Why not take your business to the next level and enjoy the fruits of greater business value? Is it onerous? Yes, it will seem so at first, and you'll complain a lot, but the difference will make you smile, one day!

Cheers

Mark Corke

Learn how to Prepare Your Business for Sale at our next round of seminars in Sandton and Cape Town. You can book by following the link.
Sandton - 12 November 2007
Cape Town - 26 November 2007
Learn how to Present Your Business for Profit at our next round of seminars in Sandton and Cape Town. You can book by following the link.
Sandton - 20 November 2007
Cape Town - 27 November 2007
Have you ever considered helping business owners to sell their businesses? Mergers, acquisitions, exits, management buy outs, management buy ins. It’s a lot of fun, really. And very interesting. Suitegum needs to increase the number of brokers. Training starts on Wednesday, if that's not too soon, otherwise we'll be doing it again early next year . Do you know someone who might be interested? Perhaps you are! Take a look at our requirements here