Preparing to exit a business

Closing/Selling your business

At some point in your business career you WILL exit your business. Make sure you have everything in place to legally prepare for exit.

Learning outcomes:

  • Thinking about your business from a Buyers Perspective
  • Your key business asset
  • Business Legal lifecycle

*It is recommended to download the workbook (below) to refer to during this presentation

Please note: the content in this module is presented by industry professionals, and designed to raise awareness and develop basic knowledge. If you are looking to take any significant action for your business we recommend speaking with a professional so they can offer advice specific to your circumstance.

Video Presentation: Preparing for Exit - A Legal Perspective [transcript]

Preparing for Exit - A Legal Perspective

Hi, my name is Jeremy Streten and welcome to this presentation - Preparing for Exit, from a legal perspective.

So, as I said in the intro, this is preparing for exit from a legal perspective. So a little bit about me, my name's Jeremy Streten, I'm a lawyer and an entrepreneur. I run a law firm, SMS law, that has an office in Caboolture and one in Morningside in Brisbane. And I've been a lawyer for now about 17 years at the time of recording this. And one of my favorite topics is this one about preparing for exit and making sure that you have everything place to prepare for your exit of your business in the right way.

It's a little bit about me. So, as I said, I've been a lawyer for about seven years, 10 years. And I started my law firm because my partner and I decided that we could do things better than everyone else, and that we would start our business, and be able to do that in a much better way than where we'd previously worked. We've certainly learned our lesson, the hard way with that, and we really have developed in a really good business that operates and helps business owners to take their businesses from startup to success.

And our why, of why we have our business, is that we believe that every person has the right to choose the life that they want to live. And if we can help them to do that through their business, then they can build a great business which will help their community, their employees, will help them thrive and make the world a better place.

So, my background is in law. I also do consulting where I help business owners prepare for exit. I run a mastermind and online mastermind where I help business owners run their businesses and also prepare for exit. As I said, this is one of my favorite topics, because at some point in your business career, you will exit your business, whether it is by choice or by something that happens outside your control, you will exit. And having a business that's ready for exit is so important because you never know when that might happen.

It takes two years for a business to be ready for sale

So I wanted to talk about this statistic first and that is that it usually takes two years for a business to be ready for sale from the time that the business owner decides to sell that business. Why is that? The reason for that is that most people's businesses they're so focused in operating their business, that they've never thought about putting all of the steps in place that will help them to have a great business.

They might be receiving cash instead of, yeah, they're not recording it on their books. They might be doing something, you know, that they haven't had the documents prepared. They haven't protected their intellectual property. They haven't done many things. And so when business owners come to me, I usually say, well, it's gonna be two year process to make sure that you're ready for sale. And that's why it's important to start thinking about these things now. Preparing your business from the start to be ready to exit will save you a heck of a lot of time in the future and will save you a lot of money as well.

So I'm going to talk about three key topics today. I'm going to talk about thinking about the sale of your business from the buyer's perspective. And I'll talk about why that's important. I'm going to talk about your key asset for your business. And then I'm going to introduce you to the concept of the business legal lifecycle, which is the subject of a book that I wrote a few years ago, that is an Amazon bestseller, and that has been expanded through to the United Kingdom and the United States. And I've working as, at the time of this recording on a South African version.

Thinking about your business from a buyer's perspective

So let's start with, thinking about your business from a buyer's perspective. So why is this important? This is important because when a buyer comes to buy your business, you need to have everything in place that they will want before they think that they need it. And you will get a much higher price if you're able to set your business up properly and have all the key chocks in place, properly for your business. So often. So often we see business owners sell their businesses because they have to, maybe they've gotten sick or they've decided to move away, or family members got sick, and they need to sell their business and they don't have everything set up properly. And that means that the price that is paid for that business is lower. And the more work that you do now to build the asset and to think about it from a buyers perspective, the better.

So I didn't mention at the beginning, but if you haven't already. Please download the workbook. So where this video is to download, there's a workbook, it's a PDF document. And, I've really liked you to download that and have a look at it because I'm going to go through that in these points.

So the first one is a checklist. So on page two of that PDF is a checklist of the things that you need to think about from a buyer's perspective. So these are things like, are your financials, your profit and loss, your balance sheet, and your cashflow projections - are by up to date. Do you have a procedures manual? Have you protected your intellectual property? Do you have workplace policies if you've got employees? Do you have contracts with your key clients and your key suppliers? These are the things that buyers are going to want to have look at when they buy your business and if you don't have them in place or it takes you a long time to put it together, that can cost you a lot going forward. So make sure that you think about these things now, because if you don't then it's going to cost you a lot going forward.

So what is a buyer looking for? To the second point on this slide. They're looking for all these things. They're looking for a business that they can step into. They can take over and that they can operate with minimal effort. And they don't want you involved. Yeah, the worst sales I see are ones where the owner, the previous owner remains involved in the business somehow, because, that's a problem because you still are the owner, you know, you still, you still see the business as, as an owner and it ends up reducing the value of that business what the buyer's going to get out of it.

So making sure that you have the business setup from what a buyer wants, and the buyer's perspective will really help solve those problems and make sure that you get through and be able to sell your business without having to wait for two years. Cause you've got all those things in place.

Understand and talk about your key asset

The second topic is to talk about your key asset. There are so many businesses in Australia and the world, and so many of them offer very, very similar services. Whether you're a law firm. There are thousands of law firms in Australia. Whether you're a shop thousands, there are thousands of shops in Australia. No matter what type of business you have, you no doubt in an industry that is going to require some, some standardisation of how processes are done. And any business and its true value is in its key asset, which is, which is it's intellectual property. It's intellectual property is how you do what you do. What makes you unique? Have a think about what makes you unique in your business, because that's the true value of your business. Making sure that you have a unique value proposition and that knowing why people come to you as opposed to everyone else that's out there in the marketplace, we'll hope you to understand what you need to build.

And this is something that is missed on such a regular basis by business owners. Cause they think, Oh, I'm a lawyer. And so I just sell legal services. Well, you don't because you actually sell your services. You're unique. Your team are unique. If you're a shop, the way that you present the shop, the way that it feels, the atmosphere, they're all unique parts of your intellectual property. And when you think about what a buyer will be looking for, they want something that is they're going to get good value for money, and that they're going to be able to buy the intellectual property that your business operates from and set up in a unique way.

So in the workbook, we've given you a two column on page three. It's really simple. Sit down and think about what is unique about your business. Sit down and document. I would spend at least an hour. Cut yourself off. Turn off all your notifications. Turn off your phone, turn off your emails, everything that pops up. And have a think about what is unique about what you do. And if you're not sure, get someone else to help you. Talk to a key client. Talk to key staff members. Talk about what makes you unique. You get, so we as business owners get so stuck in what we do that a day that we forget about what actually makes us unique. And that ends up causing us lots of problems. So write down what is unique about your business and what you offer, and then have a think about how can you protect that intellectual property.

If you've got a trademark that's really well known, then you can potentially register that trademark to protect it with IP Australia. If you've got a webpage, you might need to look at protecting certain parts of that intellectual property going forward. If you're not sure, get advice, go and talk to a lawyer who knows what they're talking about, about intellectual property, and find out what you can and can't protect and what you need to do to make those protections in place. Because when you do that, you're protecting the asset, the key asset of your business. And as I say, I don't care what type of business you operate. How you do it and how you do the work that you do is the true value of that asset. Spend some time, think about it, document it. And then I would diarize it to have a look at it in say another six months or a year's time and think about it again. Think about, okay, what do I need? What other Intellectual property have I created? What else is great about my business that a buyer would want to have? And keep on documenting it, because if something happens suddenly, then you've got yourself protected. If you just decide to sell, then you don't have to wait for those two years, you can have a much shorter timeframe and have yourself set up correctly.

The business legal lifecycle

So the last topic I wanted to talk about today, is this concept of the business legal life cycle. So if you have a look at page four of the workbook, you'll see the diagram of the business legal lifecycle. This is a concept, as I said, that I came up with a few years ago, and basically it came from my frustration with the practice of law being too reactive and not proactive enough to help set people up for success going forward.

So you'll see with the lifecycle. If you have a look at page four of the workbook under part three. That the business legal last cycle is a curve that has ups and downs in business. And the peak of it is the sale of whole, or part of the business, or listing on the stock exchange. If that's you want to go.

The idea of the life cycle to build your business, to cover all of those things that you need to set yourself up so that when you sell the business, or you're forced to sell a business, you get the highest return you possibly can.

So I'm not going to go through all 13 phases because that's a much longer presentation. You can get a copy of my book on Amazon. You can download them there or you can buy them directly from business legal lifecycle.com.

But the basic premise of it is to set your business up for success. So the tagline of the book is how to build your business from startup to success. And basically we go through the 13 phases to be able to do that.

So it starts off with what I call the startup phases, which are conception, startup and initial clients. And this is all about making sure that your business is set up correctly and has all the right things in place when you start up. Making sure that you've got the right entities in place. Making sure you set some goals for your business. Making sure that when you've got clients, that you enter into agreements with them that are valid and binding. The amount people who miss that, because they're so excited about getting into their business is really, really sad because that might be fine for the first year. But two years, five years of business. And when things, they start to go sour, they don't have any contracted documentation for their business. And it ends up costing them a lot of extra money in legal fees because there's a dispute.

So having those things initially are really, really important. I'd also say that even if you're not a startup, if you have been in business for two years, three years, four years, 10 years, 20 years, still looking this process because it sets out all the things that you have to have in place for your business, for it to be a saleable asset.

The consolidation phases

So the next three phases, which cover bringing on employees, protecting intellectual property and maximizing your business. I call the consolidation phases. So these are after you know that you have a business and you know that you've got something to start with. These three phases go through what you need to do to actually consolidate what you've got and to start to build the real foundations of a business that can be expanded.

So you'll notice on the business legal lifecycle chart that there's a dip on bringing on employees. That's not necessarily meant to be a negative thing. The point is that when you bring on an employee, there is usually some sort of dip in your business. It might be a dip in your revenue. It might be a dip in your profit. There might be a dip in the time that you have to spend in the business because you're training someone up. But the idea of it is to show that there will be a dip, but by doing these things in the consolidation phase, you will actually build a better business and then be able to scale it up. And it will cause you a lot less problems if you do all that stuff upfront.

Protecting the intellectual property. That's why it's in phase five because once you've got a business and you've got employees, you've got something to protect. So you can do that in phase five, protecting intellectual property.

And then phase six about maximising business is all about just getting those, the final chocks in place to make sure that when you're ready to expand, you have all the bases covered. You don't have any problems. Cause when you, when you expand a business and you’ve got problems, they are amplified. I know that from experience with my law firm. When we expanded to two offices and we had some problems with some intellectual property, not intellectual property, some information technology. When we did that, we hadn't thought about the information technology and the problems that we had with our server expanded because we had multiple sites.

So you want to think about all those things in phase six, to make sure that you do that correctly and that you're ready to expand.

Then the next four phases, or are all about expansion and scaling growth, depending on the type of business that you want to buy. And talking about investing in property. And unfortunate litigation is it just a reality in our lives and, cover off on all those things.

Having all that in place helps you to sell your business for the best possible price and to get the best return and own the asset that you've built. And then the final phase is talk about retirement and insolvency. I won't go into it into those details if you need any help with that, just, just let us know.

So that's the business legal lifecycle and what it can do to help you is to help you really identify the blind spots in your business. So that you can set up a business that will sell for the best possible price. I really would implore you to think about that now. Don't leave it until you decide you want to sell and then have another two years. Get it, get in there and fix it now so that you have a saleable asset in the future.

So the final slide here is just one on an offer for you. If you would like to talk to me about any of these issues or get any advice. If you go to Jeremy streton.com/innovate-mb from Moreton Bay, I'd be happy to have a half an hour chat with you just to see where I can help you.

There are lots of tools with the businesses. Legal lifecycle. We can go to business legal lifecycle.com as well. If you want to check that out, we have podcasts. We have a SAS test where you can see for yourself what you’re missing your business from a legal perspective, and do that. And then you can take that to your lawyer to help you to, to plug the gaps.

And you can download a copy of my book, as I said, the business legal lifecycle. So thank you so much for your time today. I hope you've got something out of that. Please have a look, the workbook and spend some time doing the exercises in there because they are designed to help you to have a better business that is in a better position to sell. And if, as I said, if you any questions, please reach out to me and have a great day. Thank you.

Podcast

Resources

Download Workbook
WORKBOOK: Preparing for exit a business (It is recommended to download this workbook before commencing this business support module)
View
Download Presentation
Preparing for exit (slide presentation)
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