The sun has finally arrived in Auckland and there are probably about 8 effective weeks until things start to slow down for the Christmas break. A number of business owners start the annual thought on whether they can commit to another year ‘sitting in the same seat.’ But with all market advice pointing them towards riding it out, what options are there for an exit?

A valid question any business owner should ask themselves, especially in these recessionary times, would be, is my business the perfect add-on for a competitor or business in a similar category?

Often times businesses in New Zealand never really get to reach their true potential because of the nature of our business ownership practices. This isn’t the post to rehash this old oyster, but the market in most categories is full of similar size owner operator businesses competing against each other and often a large international player. These businesses do very well for the owner but their growth opportunities are limited by either the owner’s avoidance of risk, inability to raise capital, lack of ambition or vision.

In tough times, often the only way for a business to grow is by acquisition, so to take it further would your business be an attractive addition to other players in your category or similar categories? If the answer is yes then there probably isn’t a better time for you to exit should you so wish.

What would be the things that are important to a potential purchaser?

1. What is the term remaining on your lease? It is often very attractive for a purchaser to be able to roll the business into their existing premises, so don’t commit to any extension on your lease just yet?
2. Is you margin or gross profit (GP) stable or improving each year? Any purchaser will be more interested in the GP your business achieves than its Nett profit because the operating costs of the business is where they will be able to make savings because of the duplicated running costs of the two businesses.
3. Complimentary agencies. Very often because there are a number of similar sized businesses trading in similar categories the agencies get spread around. Would there be a benefit to another company if they had your agencies along with their own?
4. Call on same customers. If your reps call on the same customer mix then a company adding your business to theirs just becomes an exercise of adding to their range.
5. Staff. It is very difficult to find experienced staff. If you have staff that are respected by their peers in your category this again becomes very attractive to any potential purchaser.
6. Intellectual property. IP can be as technical as patents or as simple as a good business practice.
7. Systems. Often companies who purchase businesses as add-ons identify systems that can aid the new entity and as such add value to the transaction. So make sure anything that you believe could be unique to your business is flagged during any sale process.

It is always the age old concern about when is the best time to sell your business. There is never going to be the perfect time to do anything in this life but we feel owners should look to sell when they have a very good opportunity for success and if you business offers other businesses a market advantage, should they purchase your business, then an economic downturn offers a great chance for success.

We currently have a small Import/Distribution business that operates in a specific and highly competitive category. Is a nice sized business with turnover of $2.5m and GP about $950k and on a month to month lease. We haven’t released this to the general market as yet, but what we have done is go to the other players in similar categories and asked them what adding $2.5m of turnover and/or $950k of GP is worth to their business.

In this case we estimate because of the simplicity of the business and the fact that it can be moved into a purchaser’s existing warehouse that as much as 60% of the GP could hit the bottom line of the purchaser’s company.

In our time as brokers Paul and I have probably seen hundreds of companies that operate in and around the $2-3m range in turnover but are never able to push their business growth organically enough, to reach that sweet spot where their OPEX doesn’t increase with an increase in sales, so nett profit percentage grows exponentially.

If your business offers other businesses this opportunity, and you want to exit, then now is the time to talk to Switch Business about selling.