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How and When to Sell a Mature Business
When selling a mature business, it’s important to understand the different opportunities and how they vary from selling a start-up.
A mature business is not only defined by its age but by its lifespan. It is in the mature phase of its lifecycle, and after a strong period of growth, it goes into a plateau phase. What the business may need is a boost to elevate it to the next level, at which point, the owner may decide to sell. This is dependent on their desire and enthusiasm to continue and grow the business. Choosing this moment to sell makes the business a very attractive proposition for buyers.
The most important question is – when to sell your business? The right decision will lead to a very satisfactory result. The wrong decision can be disastrous.
Pros of selling a mature business
The biggest advantage of a mature business is that it is low risk. It has developed and matured. It has survived for a long period of time, thriving when many businesses closed. When a business is low risk, it has higher value and is more desirable.
The business will also have a mature client base and long-serving loyal staff. It has a clear and identifiable position in the marketplace. Hopefully, it will have a good profile, a reputation for quality and good accreditation. All these factors give it a high value and make it an attractive, low-risk investment.
How does maturity link to value?
Younger businesses don’t have that trading history. Even if they have undergone a healthy growth spurt, is that going to continue? Is it going to be consistent? Is it going to move into a mature business? Invariably, there is a lot of uncertainty about younger businesses. When there is more risk and uncertainty, it decreases the value of the business. Most buyers prefer to see it mature over time and increase its value.
As owners get older and lose enthusiasm, their business can go into a decline that is reflected in the financials. While a buyer can see this as a weakness, it’s also an opportunity they take advantage of. New enthusiasm and new ideas are often all that is required to push a business into its next growth spurt.
Valuing a mature business
From a valuation perspective, most emphasis should be on the past 12 months of trading. A trend line will indicate if it is falling or rising. While an underperforming business can be an opportunity for some new blood, it is better if a business is showing growth. This makes it a highly attractive investment, particularly if there are identifiable growth opportunities.
When selling a mature business, it’s wise to have a business plan in place. It shows the buyer vision and articulates strategy. A forecast budget can be produced that explains actions, costs and return on investment. A buyer may follow the plan or choose a completely new path, but it is a clear addition to the value of the business. After all, the current owner knows their business better than anyone else. A buyer would be badly advised not to review and assess the opportunities that have been outlined.
When selling a business, a business plan and budget forecast is something we would articulate in the information memorandum to the purchaser. It would be made very clear that this is where we see an opportunity to take this business.
Article written by Sean Wolrige, Business Broker & Valuations Specialist - LINK Sydney
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