Getting great returns on your business sale online version

Mark Ostryn
Knowledge 2020 Pty Ltd
September 2010
http://www.knowledge2020.com

GETTING GREAT RETURNS ON
YOUR BUSINESS SALE
(EDITED ON LINE VERSION)

About You

 Your industry?
 Your biggest challenge?
 Your timescale to exit?

www.knowledge2020.com - October 2010

First, the bad news -
In Australia, (like the rest of the world)
business values are, on average,
falling.


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.


The Australian Age Wave

40000

35000

30000

25000
Baby Boomers
20000
Post WW2
15000 TOTAL
10000

5000

0
2005 2010 2015 2020 2025 2030


“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


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.


Today’s Agenda

SELLING –
STRATEGY – Marketing,
Anticipating negotiating &
buyers needs & closing
SELECTION– defining
Most valuable company
subset of around them
potential buyers.


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

Strategic Buyer


Why will they pay top dollar?


Why Strategic Buyers Buy


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


Part Two - Strategy

SELLING –
potential
buyers.


Creating
Creating Doing the
Competitive
Value Deal
Tension


Six Strategies


Future Vision


2010-2015 – Richard Watson


Major Trends

a self-fueled cycle of learning
that could be as significant as
the invention of print.


Education – Future Considerations


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

Customer Empathy


Nasty sound on front right side of car ..


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


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.


The Customer Service is the Brand


Theodore Levitt – Success Through
Differentiation


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


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.


Drive for Profitability


Ways to Grow A Business

SOURCE: Keith Abraham

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

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?


76%


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


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

Part Three - Selling

SELLING –
potential
buyers.


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


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.

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

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.

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.

Framework for Due Diligence


SOURCE:


Alternatives to Selling

 Family Succession
 Employee Buyout
 Partner Buyout


How Knowledge 2020 Assist


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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