PREPARE YOUR BUSINESS FOR SALE - The Grape and The Watermelon

PREPARING YOUR BUSINESS FOR SALE

The Grape and The Watermelon - by Mark Corke

Good Morning Bloggers

For a while, with his permission, I will be posting articles from Mark Corke of Suitegum.

Mark is a Business Broker, who writes articles on, and runs seminars on “Preparing you Business for Sale”. Should you wish to register for some of Mark’s free articles and tips, Here is the link.

Both Mark and I are of the opinion that ensuring that your Business is Prepared for Sale at all times will ensure that your business always commands the highest value. It actually increases the value of your Business quite considerably.

I watched my nephew reach for the last grape on the plate that had a little earlier held bunches of the fruit. His sister stretched across and took the grape from under his nose. .

Just then my sister came out of the house with a very large watermelon. The grape was forgotten as both kids moved from one leg to the other, little hands clasping the edge of the table as the giant fruit was sliced thickly and then further dissected, the juice running off the cutting board and soaking into the table cloth. The kids ran skipping and laughing into the garden, each with a handful of the sweet juicy pink flesh. Both were happy and satisfied. And when we left that evening, watermelon was left over, everyone having had their fill.

Chin dripping wealth
It makes me think of how many small businesses remain small and stuck in a rut because the owner is hell bent on being the owner of the grape, sharing with nobody, but hoping that by some miracle this grape of his will transfer into a plum or even a peach.
I have been doing some sitting with a small business of late. Actually I sit with a lot of small businesses, but this one in particular is about to make the transition from peach to watermelon, having recently grown from juicy grape. How so?
A little while back we were asked to sell the business. Through our investigations into the value of the entity, it became obvious that although the business had been enjoying a tremendous growth, it could not do so any longer without significant investment. And so our approach to various purchasers includes telling them that they should be prepared to invest several millions, over and above the purchase price.
There are half a dozen interested parties, all looking at different options based on a common theme: The owner likes his business and wants to stay on board as an employee. The business is profitable, but reinvests most of its profits each year into its own growth. The business is well established in its own vertical market, but cannot break into other markets because of a poor empowerment scorecard. The owner wanted originally to sell all his shares, but has realized that a bigger future awaits him if he retains his shareholding to some extent.
And that is the key: If he remains a shareholder and director in the business, he will transfer his whole peach into a chunk of watermelon which he will be able to finish only with great greed.
Retaining the shareholding and a directorship provides the investor with a stable platform going forward. A dedicated part owner employee, if you want. But not any run of the mill employee; rather one who shares a common goal with the investor – maximise profits to grow the underlying value of the business as a whole.
And so they will become partners in a business, one who understands the intricacies of the industry, based on decades of experience, and another who is able to bring professional systems, cash flow, and door opening contacts in other markets. In addition the business will have a war chest which it will be able to use to make strategic acquisitions from amongst its suppliers, customers or even competitors.
In the meantime the seller becomes a director and in fact remains as managing director, meeting with his new directors on a monthly basis to review the management accounts, and plot the way forward towards a common goal of maximising their wealth.
Finally the plan comes together our friend when the investor exits in three or four years’ time. At that stage the business will be worth four times its current value, making his share then much more valuable than the whole he has today. And that will be a real retirement gift!
Too many South African sellers of businesses are hell bent on an “all or nothing” strategy, when a bit of patience is able to produce the real fruits of success at a time when years of seller experience can complement buckets of resources to produce real wealth. The short sweetness of the grape or the luscious juicy chunk of watermelon? Your call.
CheersMark Corke