How You Can Sell Your Business To Generations X And Y

The unfortunate fact is that with limited time to accrue wealth and little left over for saving each month, many potential Generation X and Y buyers will have insufficient financial resources of their own to purchase a business. So how can Baby Boomers still attract potential business buyers from Generations X and Y?

There is a once-in-a-life-time opportunity that retirement presents to the many Baby Boomers who own one in three Australian businesses. Just as importantly, this also presents an enormous opportunity for the potential buyers of these businesses amongst Generations X and Y, as they now have the possibility of acquiring many businesses that rarely come onto the market for purchase.

The secret to making the sale, given the lack of financial resources available to the younger generations, while still getting what you're owed from your business, is two-fold. Firstly, reduce the amount of financial resources your buyer will need overall; and secondly, utilise additional financial resources that are readily accessible.

Reduce the amount of financial resources needed

Here are some of the key ways to reduce the financial resources your buyer will need:

Sell only what you need to

Numerous businesses have either small ancillary parts of their operations or fixed assets that don't form part of the "core business" and aren't vital to its continued function. Where possible, seek to have these removed from the purchase price, or prearrange to on-sell them immediately upon the business being purchased.
Vendor finance

Many Baby Boomer sellers are already financially secure and not in a rush to receive the full purchase price for their business in one lump sum payment. You may be happy to be paid over a number of years and may even be willing to stay on in a non-executive capacity during this time, providing your buyer with the benefit of your advice and contacts.

As businesses typically experience a dip in sales after an ownership change, it may also be wise to offer a postponement or reduction of these periodic payments for the first few months, reducing working capital needs and further decreasing the financial resources necessary to complete the purchase.
Stock up?

It's important to understand the real stock holding needs of a business and this can only be completed through first hand analysis. You'll usually have set holding levels and re-ordering triggers, but it's common for new owners to identify significant opportunities to reduce stock holdings.

Ideally this should be completed prior to purchase through the due diligence process, giving an accurate picture and allowing stock to be run down to the new required levels prior to purchase, thus reducing the amount of working capital needed at the time of purchase.
Creditor terms

As part of the due diligence process, meet with the large suppliers to your business and sound them out on the possibility of extending their payment terms. Adding even a week or a month will make an enormous difference to the amount of working capital they'll initially need.
Commercial lease bonds

Where premises are leased and a bond required, suggest that they don't use cash and consider using a reputable bond guarantor that is not their primary bank, thereby releasing that portion of their financial capacity for other use.

Utilise existing financial resources

The second secret is to find additional sources of capital that can be accessed to complete the purchase. An obvious option is an equity partner, but many buyers would ideally like to retain full ownership and control. Consequently, buyers borrow against bricks and mortar or from friends and family, but often forget that the business being purchased has assets of its own that can be borrowed against.

Here are just a few examples you can highlight to your prospective buyer:

Fixed assets

In every business there are assets such as fixtures and fittings, plant and equipment - even computers and forklifts - that can potentially be borrowed against rather than tying up precious capital. If the assets are already leased, this existing lease can usually be assigned to the new owner. Alternatively, if they're unencumbered you can consider what is known as a "sale and leaseback" where the goods become leased and the capital invested in them is released back to the business.
Inventory

One of the largest assets many businesses hold is inventory. This stock ties up a very significant amount of working capital, which is often funded against bricks and mortar security. Inventory Finance lends directly against the stock, without real estate security or stock pre-sale requirements. This releases the working capital and is particularly suitable for buyers of businesses that must hold significant stock levels.
Debtors

Another large asset in many businesses is its debtor book. This comprises payments that are due from customers, following the delivery of goods or the provision of a service. Debtor finance can release up to 80% of the value of these outstanding invoices immediately, with the remaining 20% paid less applicable fees once the payment is received from the customer.

The opportunity to sell to this new breed of buyer won't last forever, so capitalise now by boosting your businesses selling power through minimisation and tapping into every available funding source.

Matthew Nolan, Managing Director of Provident Inventory Finance has over 17-years experience in banking and finance, specialising in providing finance to SMEs. For more information on financing your business growth visit http://www.inventoryfinance.com.au/ or call 1800 763 012.
First published: 22 July 2008.
Last updated: 22 July 2008.