How to sell your business for 10 times its worth and get succession planning right

One of Australia’s best-known retail brands has changed hands, and it went for a song.

Last week, Rivers sold for just $5 million, despite having revenue of $180 million a year, 160 stores nationally, and $6 million in online sales. A recent sexual harassment case against Rivers Australia founder Philip Goodman can’t have done much for the company’s valuation, but the sale price is still astoundingly low.

It’s a worrying omen for Australia’s small businesses, many of which are looking to sell up in the next few years. Studies show that most businesses in Australia are owned by baby boomers, who don’t want to keep working forever.

In an exclusive webinar last week in conjunction with Business Victoria, SmartCompany spoke to Jason Cunningham, a founding partner at financial advisory The Practice, about how business owners can sell their business for 10 times its worth.

Here’s just some of what he had to say:

Start preparing for sale now, whether you plan to sell or not

“When I talk to clients of mine, I say, you really should prepare your business for sale. And most say, ‘Hey Jason, I don’t want to sell’.

But imagine you had a business that was ready for sale – one that you could get the maximum price for. What does it look like?

It’s highly profitable. It’s got amazing cashflow. It doesn’t rely on the business owner. You’ve got the best type of customers. You enjoy yourself every day.

And you know what? That’s the kind of business I want to have.

If you have that type of business, you’re also going to get a big cheque when it comes to pay day.”

How much do you want to sell for, and who could help you achieve that?

“First thing is to work out who are the options. Am I going to pass my business? Am I going to sell to my existing business partner? Are there employees I want to sell down equity to? Do I want to sell to a competitor? Is there a larger business I can sell to?

And then, figure out what they want to buy – what your business has to look like for them to pay you the absolute maximum.

Yeah sure, I’m an accountant. But first and foremost, I’m a business owner. I just happen to run an accounting practice.

A lot of my competitors do an amazing job. But too often, they spend too much time being accountants. They get really excited about tax returns and BAS statements. But you also need to understand the business owner.

If I sell my business to another accountant, they might pay me up to five times EBIT. But who would pay me more than four or five times? I’m now talking about a different purchaser – perhaps a publically listed entity. Would a bank buy me? Why would they? Once you start asking those questions, all of a sudden it’s a different ball game. Banks have more money, so they can pay more.

So then, you focus on building a structure that looks like something they’d be prepared to pay for.”

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