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DO YOU HAVE A JOB OR A BUSINESS TO SELL? KNOW WHERE THE VALUE IS AND SHOWCASE IT

DO YOU HAVE A JOB OR A BUSINESS TO SELL? KNOW WHERE THE VALUE IS AND SHOWCASE IT

Marine Industry Business Specialist Mick Godwin Explains

When it comes to selling, one of the most common misunderstandings a vendor has about their business is that they even have a business to start with. Too often, vendors go to market without proper guidance from their broker and try to sell their job for top dollar. Asking buyers to stump up their hard-earned, to then go and work 50hrs per week in their new ‘business’ or risk losing it all is an audacious request, to say the least. But, the good news is, regardless of your involvement in your business, it does hold value; you just need to know where that value is and showcase it.

My name is Mick Godwin, and over the years, I’ve heard every type of interpretation for what a business means. And that interpretation will be different depending on your angle, whether you are the vendor, the accountant or the buyer. As an owner, it only really matters that you understand the difference between a business you work in and a business you run once it’s time to sell. What an accountant told your mate at the pub regarding business value doesn’t matter much for a buyer. The purchase price will be significantly different depending on what you’re selling, even if it makes you less.

Let’s talk numbers. Kevin, a made-up name, is looking to sell his chandlery business, Kevin’s Chandlery. Kevin’s Chandlery has afforded Kevin a decent living over the past 10 years. He’s been able to pay his bills, take four weeks holidays per year, earns $150,000 p.a. and is at the point where he only works Tuesday – Saturday. He’s got a team of 10 employees who help him keep the business running. In this instance, Kevin has a job, and the value of Kevin’s business will be approached on a

PEBITDA basis (proprietors’ earnings before interest tax depreciation, amortisation). Rarely, and I mean rarely, does a listed business assessed on a PEBITDA basis achieve higher than a capitalisation rate of 50%. In other words, a multiple of 2. With this in mind, and ignoring many other factors that drive value, Kevin’s Chandlery may sell for a maximum of $300,000. However, if I was a betting man and I’m not (I prefer guarantees over chances), I would expect a more modest result around the $225,000 – $250,000 mark.

Now, let’s go back in time ten years and assume Kevin entered my Sales Ready Program. Same business, even the same profit, but Kevin spends his days doing something else and only has a meeting each week or month with his general manager. Usually, the meeting consists of his general manager informing him which employees are hitting their KPIs and what stock should be promoted and sold. Kevin hasn’t needed to hire anyone in a few years as the systems he built into the business support his manager in hiring right. The financials are crystal clear, which gives buyers confidence in what they are buying. And he has integrated his CRM with marketing to ensure old customers come back and new customers are satisfied. This Kevin has a business, and businesses are always worth more than jobs. So even assuming he brings in a little less profit than ‘job’ Kevin, he’ll achieve more on the market. However, the reality is this Kevin would be earning a little, if not a lot more.

To put it succinctly, our first Kevin hires staff to help him do his job successfully; the second Kevin has a business that allows his employees to do their job successfully. Using our smarter, more successful Kevin’s business and ignoring all other value drivers, a business will usually achieve at least a 3 multiple despite its profits. In this case, a full $150,000 or more than his job version.

Transforming your job into a business has no drawbacks. More time, more money and a higher selling price result from owning a business rather than a job. If you would like to learn more about how to prepare your business for sale to achieve your highest sale price or get your business on the market, give me a call via the details below. I’m based on the Gold Coast, but I look after the buying and selling of companies right across the country because the horizon is the limit when dealing in the marine and tourism industry.

For a confidential consultation, call 0416 638 154 or email your details directly to mickgodwin@benchmarkbusiness.com.au

Published in print January-March 2022