How To Build A Transferable Business - Ian Jones

There are tens of thousands of businesses on the market in Australia, right? And every buyer is looking for something. And if you've got a business that is generating, I don't know, say half a million bucks a year of profit, and there's another business that's generating the same degree of profit, right? And they're both on the market and say a 3x multiple or whatever it might be. One of them relies absolutely solely on a business owner and the other one you know, the guy can take holidays. It's not necessarily that they're going to make a higher multiple, but that one will sell and the other one might sit on the shelf for a while.

So you're thinking about selling your business, or maybe at the very least you're a little bit curious about how much your business is worth and you want to know what the key drivers of values are. Really, that's what I want to explore today. I've got Ian Jones from businesssales.com.au. Firstly, Ian, thanks for your time.

Good to be here with you, David. Absolutely.

Maybe it's a great place to start. When it comes to selling a business, where do you think a lot of business owners go wrong?

Well, probably I would suggest right off the bat, confidentiality. They don't really— a lot of people don't manage their confidentiality processes. I mean, you can always go back further and say, look, Preparation is key. The more prepared they are, obviously in the business, having really great systems, all of those things, making sure that the business isn't fully reliant on them. Every buyer, they need to think a little bit more about who the, not necessarily assume who the buyer is, but think about what the buyer might need from the business. They want comfort and confidence that a business, if it's running now, will continue to run in the future under new ownership. And a lot of people don't think enough through all of that. But certainly into the process itself, like confidentiality is really, really important and probably in a lot of cases poorly managed. Not being prepared for the process is probably a big one. Not having a plan for not just the sale, but what they're going to do afterwards as well is a really big one. And obviously having the business correctly priced, you know, they're all really, really big things. And they're all very easy to get wrong if you're not doing it properly. But if you get those things right, a business that's well priced, well marketed, confidentiality well managed, you know, businesses are very saleable. There's plenty of buyers looking for great opportunities.

Yeah. I feel like a lot of those issues you mentioned really just a lot of them come down to planning and not thinking about it. Like, I'm imagining in the day-to-day operations of your business, you're doing things repetitively, and there's delivering of your products and services to the same clients, and you get really good at doing that, uh, or at least we hope you do. And, um, but when it comes to a sale, it's, it's not something that a business owner does frequently. You know, they might only get a handful of sales or a, a sale in their lifetime.

So Maybe one in their lifetime is a really big thing, right? Maybe only once. And I think having a business that's transferable, I mean, buyers want everything, right? Like they're putting money on the line and all of those things. But really what they want is they want comfort and confidence that when they take the business on, that it'll continue to run well. So whatever making their business transferable looks like for your business, is something that everybody should give consideration to.

Over what time frame do you think someone should give to prepare for sale? Like, that's the other thing, you don't want to be in a situation where it's emergency sale or you just want out. I mean, that's never a good time to sell anything. Um, so how should someone be thinking about the timeline for this?

Well, it's easy to go back retrospectively and say, you know, there's the old saying, the best time to plant a tree was 50 years ago. The next best time is today, right? And it's a little bit like that with businesses because, you know, going back, you'd say, look, maybe 3 years ago or 5 years ago, or even when you start a business right at the start, that's when you really want to think, you know, always start with the end in mind. And so the further back, the better. But the truth is, like, being in business isn't easy. And, you know, you're juggling the day-to-day and all of those sorts of things. And Sometimes there are circumstances, people's health has an impact, or there are unexpected circumstances that impact and necessitate a quick sale. And even though, you know, a sale might not have been as well prepared or as well planned, like, but I want people, business owners to know that there's still hope and you can still achieve really great sale outcomes if you haven't put everything in place, but if you can put everything in place, you're going to be more like, you know, the better prepared, the better the outcome you're likely to achieve. But, you know, when people need to exit, you know, they can still do it. There's still hope for them. But the earlier the better. Now is the right answer today.

That's right. Some of those key value drivers, I mean, you touched on transferability. Like, I feel like that's the big concern of whoever's acquiring the business is, you know, am I buying an asset that will continue to have value and continue to grow beyond the business owner or key team members leaving? Are there any things that you see that really drive value and deliver higher multiples by getting them in place?

Yeah, look, Typically, the two things that'll have a really key impact, typically for a business sale on value is how profitable it is and the value of the assets that are included in the business, right? But obviously, how the business is likely to perform in future as well. If you take the key owner, the owner out, if they have a key role in the business, obviously, the more the business can run with either great systems or a great team or great processes or not necessarily. I guess the level of reliance on an owner can certainly have an impact on that. The less reliant they are on the business is on the owner, the more positive impact it'll have on the multiple or the value of the business. But it's interesting, everybody has an opinion on price and value. And I'll guarantee, like I've been involved in this space for a long time. And if you put a a buyer and their accountant and a seller and their accountant, you know, they will all have very different views on what a business is worth, right? Because the business owner has a clear understanding of the day-to-day. They know the business better than anybody. And a buyer doesn't have that same 5, 10, 20 years worth of understanding with which to base their decisions around what it might continue to look like and how it might run in the future. So really, the only price that really matters is one that the buyer and the seller agree on. But there are certainly many things that a business owner can do that'll make the business more attractive in the eyes of a new owner. But again, another thing as well is sellers, and I see this all the time, they make the mistakes about assuming who the buyer is going to be, right? And It's not rocket science to work out who the logical and likely buyer is for any business. It's usually one of 5 categories, either a customer, a competitor, a supplier, a staff member, or a strategic acquisition. So in about 15 minutes, I could sit down with pretty well any business owner. We can have a list of about a dozen people that'll be the logical and likely buyers for that business. That's not the difficult bit. But one of the mistakes, and it's not a total mistake, I mean, there's a lot of times where you go, okay, that's my target list, one of those will likely buy it. But you don't wanna sell your business. You want the right buyer to wanna buy the business. You never let the tail wag the dog. You wanna make sure you are in control the whole time. So even though they are the logical and likely buyer, don't go targeting them. Put a confidential selling campaign in place. That'll have those buyers actually reach out and express their interest because all of a sudden, it's not just that I'm interested in selling, I know for a fact that you want to buy. And the whole negotiation and any discussions that flow thereafter is a lot more positive in the favor of the person wanting to sell. Does that make sense?

Ah, hey, I know you're tuned in right now, so I'll keep this super quick, but you like awesome YouTube videos, don't you? Well, there's not really that many YouTube channels that create great content about how to systemize your small business, so I want to make sure that you catch every video that I publish. So if you haven't already, firstly, give this video the thumbs up and then go ahead and subscribe to my channel. You can even hit the bell notification to make sure that you're the first to know when I publish anything. So go ahead, do it right now. I'll wait a sec and then I'll transfer you back to the video. Yeah, I love that. Um, what are your thoughts? I'm obviously a little bit biased around process because you mentioned about the transferability and reduction of key person dependence. Um, is there any insight that you might have around the value that a well-systemized business can bring, like whether that's an increase in multiple or how you might think about it? I know it's such an illiquid market. That's what makes selling business so interesting. And like you said, people can have very different opinions on what something is worth. So yeah, any insight there?

Well, not in that, hey, you're going to get a 1x or a 2x more multiple, you know, What you'll find is having anything that is gonna make your business more attractive is going to help it become more saleable and achieve a higher price. Now the reality is there are tens of thousands of businesses on the market in Australia, right? And every buyer is looking for something. And if you've got a business that is generating, I don't know, say half a million bucks a year of profit, and there's another business that's generating the same degree of profit, right? And they're both on the market, I don't know, say a 3x multiple or whatever it might be, $1.5 mil. And one of them relies absolutely solely on a business owner and the other one, you know, the guy can take holidays or, you know, there's the dependency on him just isn't there because the business is right? It's not necessarily that they're going to make a higher multiple, but that one will sell and the other one might sit on the shelf for a while. Now, everybody is looking for different opportunities. They're looking for businesses for different reasons, right? Some people are looking for something that they can bolt onto an existing opportunity. Other people are looking for something that they can have a career change or get involved in or create some opportunity for their family or their future or whatever that might look like. And having something that is a little bit more, just easier, gives them a little bit more comfort and confidence. They're going to move forward on those ones. So having, because every buyer is looking for those, you know that it's going to sell faster. And as a result, you can put a premium price on it and it is still more likely to sell. So hard to actually put a dollar figure in for it. But the, it is absolutely clear as day, it'll make a difference.

Yeah. My brain can't help but default to, and what's the process for selling a business? Like what are the steps? So if we kind of think high level, what do you think those first few steps are? Obviously it's kind of, you make a decision or you think, hey, this is what I'm going to do. And then What next if you were kind of recommending to a client or a friend or family? Like, are there certain books to start with or listening to podcasts? And then what happens? Like, what do you see the journey as?

Yeah, look, I think having, you know, a business is way more than just financials and it's way more than just where it sits in a market. But all of those are considerations because, you know, when a buyer is actually looking at something, that the financials you know, for the most part in most businesses will have a determining factor on where it'll likely sit or sell for in the current market, right? So having clear, well-structured financials that are actually— there's no surprises in there, it all just makes sense, and it's just clear and well-defined, right? So having good, well-structured and understood financials is a good starting point. Being prepared for what you're going to do next, having some sort of explanation or understanding around why you're selling, not just, not for anybody else specifically, but for yourself. Because when you understand why you're doing something and you're actually a little bit committed down that path, you can be a little bit more clear about why and what you want to do next. When people start to see themselves doing something else, they really start to put a little bit more of the time and consideration they need to do that journey well. And then at that point, when you're clear about where the value of the business is, what it'll likely sell for, then putting in a plan. Now the plan for the most part is around how you're going to take that business to market. And for most businesses, I would recommend a confidential selling campaign because, you know, look, firstly, buyers themselves, they deserve a process that is better and more structured. Buyers work really hard to buy a business, right? So having a well-structured process for the buyer is also a really good thing. But for the seller themselves, having something that allows them to go through each of the steps. So each of the steps will involve pricing the business correctly, a confidential selling campaign, a process for making sure anybody that's interested in the business firstly doesn't know the business. They know what the profile or the type of business it might be, but they do never know which business it is until after they've signed a confidentiality deed. And the seller themselves is comfortable in disclosing information. Thirdly, you do not ever want to email information to somebody with confidential or sensitive information, financials or anything really, because once you've emailed that or sent something, there's no control over what happens with that information afterwards. Who's seen it? Who's it been forwarded to? Where's it been saved? And those are all things that can undermine the process and the value, not just for the seller, but also for the eventual buyer as well. So sharing information using a secure data room is absolutely crucial. Making sure that you're getting enough information from the buyer to, you know, who they are, their skills, their experience, a degree of process qualification is really important. And sharing preliminary information with a seller with the buyer is something that will actually allow any further discussions to progress in a well-structured way because they've already determined that they're interested in buying. They've now got enough information to determine if the price either represents good value or not, or just encouraging the buyer to make an offer at a price that makes sense for them also allows some sort of either negotiation process to be undertaken. And they're really good preliminary steps or considerations right off the bat. But also just being calm, open-minded about and prepared for the types of questions a buyer might ask. And that'll look different from business to business, but they're really good things. Always put yourself in the shoe of a buyer without absolutely assuming who that buyer is going to be.

Yeah, with a lot of this, which is going to be new for some business owners, and they're great at problem solving, um, but also some of them, you know, you don't know what you don't know. Are there particular levels and size of business when you're thinking it makes sense to engage a professional? Like, is it kind of like a, you know, there's a do-it-yourself market, you're kind of selling businesses valued around this level, or You know, once you start to cross this line, you should probably think about some sort of exit planner, or how do you think about that?

Yeah, look, I used to be a business broker. I'm a really strong advocate for having professionals, you know, sell a business. They can add a lot of value to a transaction. I guess this is for business brokers and business owners. There's usually a threshold of where that a business itself might, the fees, the charges that a broker would charge might represent more value for a business seller than another. And there's a lot of brokers themselves that'll go, hey, I love selling businesses over that half a million dollar mark because their fees and their level of value that they can bring to the table represents, and others going, mate, if it's under $500,000, it's not for them, or other brokers going, hey, if it's under $100,000, I'm not really interested. And also the value proposition around the value of their, you know, what their fees might represent versus the value that they can bring to the table. I don't think it's always necessarily around the value of the business itself. There are some transactions, there is a lot of complexity and the experience that a professional broker can bring to the table in actually finalizing and bringing a a sale to an actual structured deal and a successful outcome. You know, whether that's a $100,000 business or a $100 million business or anywhere in between, there's a lot of value that can be sought there. Where there are just some businesses where a business owner will go, look, I know the business better than anyone. They love being in control. They're used to being in control and they just want to manage the whole thing their way. As well. So typically we see smaller value, lesser value businesses that say, look, with a little bit of help and support, I just want to kind of manage that process myself. And business owners that sort of, who love being in control, like to actually be in control through the whole thing. What I would suggest in most cases, if you're not sure where you sit in that process, reach out to the company I represent, this one here, businesssales.com.au. And we work with hundreds of the best business brokers around the country. And I'm happy to, or me or anyone in our team, to understand where somebody's at, what they're trying to achieve, whether that's selling it themselves or really if they want to be introduced to the right broker because some brokers have expertise in one sector or in one region. Or one industry more than another. And truthfully, I know just about all of the good and the bad brokers in the country. So I'm more than happy to spend the time to introduce them to somebody, the right professional that'll help them in their unique circumstances. Does that help?

Yeah, that's perfect. And I'll pop a link through to the businesssales.com.au. Maybe one of my last questions is around the timing for sale and your thoughts on market conditions and if that's a consideration or is it just, you know, don't worry about timing it, just when you're ready to go, start looking for the right person and see who's in the market. Like, do you have any thoughts on that?

Yeah, well, buyers come and go from the market all of the time. Typically we do see, and transactions happen all of the time as well, right? But typically we do see towards the start of a calendar year where new buyers will enter the market. They've had Christmas, they've had New Year's, they've got their plan for what they want to do in the year ahead and those sorts of things. So we do tend to see more buyers come to market early in the year and we know that that does give time. And while deals can happen at any time in the year, we see end of financial year, and in the lead up to Christmas as being two times where there tends to be a greater influx of deals actually occurring just because of the, you know, end of financial year is nice and clean. And there's a lot of industries where they go, now we're going to work all the way up to Christmas or just beforehand, get a deal done, put a little bit of a transition plan where in the new financial or new calendar year, you know, a business might operate a certain way. But that does look a little bit different from industry to industry. I mean, hospitality, like we see a lot of hospitality-type businesses that are coming to market. They tend to transact a little bit more commonly. Lots of buyer activity in that space as well. But then you've got MSPs, technology, IT companies. There's a lot of really strong, solid demand for those as well. But that demand is sort of all year round where hospitality itself, we know that in the lead up or even hair salons, for example, you know, through the spring leading up into the Christmas time, like everybody's just so busy looking after their customers. They don't have time to get deals done. But, you know, once that sort of break is done, like very late in the year, just before Christmas or early in January or in January, we do tend to see more of those ones transact. But yeah, a lot of activity and different industries do just have slightly different timings on when deals are more likely to occur. But if you're looking at being on the market, I would say deal, you know, I would always sort of say, look, 6 to 12 months is a fairly well-structured sort of timeline for how long a business that is well priced, well marketed, should be on the market before you could expect to have a buyer. But of course, some businesses take a lot longer and some will be a lot quicker depending on unique circumstances. But also the availability of funds and finance for people to be able to secure these deals has a really huge impact on that as well. And some banks might favor lending towards some industries over others. And that's why you do sometimes see idiosyncrasies around the length of time one business might take over another as well.

Yeah, perfect. And it's a deep topic and one that definitely deserves time and thought through because it's clearly a big transaction for a lot of business owners. So I'll pop a link through to businesssales.com.au and people can reach out to you, Ian, if they've got some particular questions. Are there any other channels that you're on? Like, if I don't know if you're a LinkedIn guy or a YouTube guy, or if people want to kind of keep up with your work? Is it best through the website or somewhere else?

Look, I like through the website, but I'm a LinkedIn man. I'm always loving it and using it. And I just love working with, you know, hardworking business owners. You know, it's— business is a big part of my life. I'm really passionate about it. I started early. I've always been in that space. And, you know, there's the old saying about it's easy to get into business. The hard part's staying there and making a quid out of it. But I can tell you there's always a few challenges at the other end when you're trying to exit and, you know, business owners need and deserve all the help that they can get. And if we can play a role in sort of easing that process and letting them finish really well, well, that's something I, you know, absolutely take a lot of pride and joy in as well.

Yeah, perfect. All right. Thanks again, Ian.

All right.