Step 18 – Liquidity Event

As an SME business owner, the ultimate goal is to maximize the value of your business, especially during a liquidity event – the much-anticipated exit. This is where all the groundwork you’ve put in, the thorough preparation, finally pays off. However, the key lesson here is not to rush into a sale but to strategically plan and attract the right buyer.

The Strategic Buyer

Not all buyers are created equal, and the difference lies in what they’re willing to pay for your business. A typical buyer might offer you two to four times your net profit, but what if you could find a buyer willing to pay six, eight, or even more times the profit? This is where the notion of a strategic buyer comes into play.

A strategic buyer is a buyer who recognizes a unique value in your business that goes beyond the financials. They see potential in your product, service, IP, customer base, or market presence that aligns with their strategic goals. It’s not just about selling to anyone, but finding the right match.

To find a strategic buyer, you need to understand what makes your business unique and appealing to a certain group. Consider your product, service, IP, market presence, or client profile. Now, think of businesses that have a product or service similar to yours, or would benefit significantly by adding your product or service to their offerings. These are your potential strategic buyers.

Imagine selling laptops and finding a strategic buyer who sells mobile phones. The customers are the same, the buying process is similar, and the strategic value for the buyer is immense.

Leveraging Intangible Assets: A Goldmine for Strategic Buyers

One of the most powerful aspects that can attract a strategic buyer is your intangible assets – intellectual property, unique methods, processes, or recipes. These assets might seem small to you but can be incredibly valuable to a larger player. Consider recipes held by giants like KFC or Coca-Cola. Their strategic value is enormous.

Now, analyze your business. What are your intangible assets? What do you do differently or have that could be highly valuable in the hands of a larger player?

 How Listed Companies Transform Valuations

Listed companies are often strategic buyers due to their interest in intangible assets and their higher valuation multiples. They are willing to pay a premium because owning your business could significantly increase their overall valuation. A small to medium business might be valued at two to four times profit, but a listed company could value it at 12 to 13 times profit, creating a substantial opportunity.

Planning Your Strategy for the Liquidity Event

Once you’ve identified your potential strategic buyers, the next step is to strategize on how to attract them. Showcase the strategic value your business holds for them. Demonstrate how your product or service can seamlessly integrate into their existing portfolio, how it aligns with their long-term goals, and how it can drive their growth and profitability.

As an SME business owner looking to exit with flair, remember that the true essence lies in attracting the right buyer, not just any buyer. Focus on your intangible assets, consider the potential of strategic buyers, and aim for those who see your business as more than just numbers. By doing so, you’re not only increasing the potential sale value of your business but also ensuring that your hard work and dedication in building your enterprise pays off in the best possible way.

This article was originally published on capitaliz.com.

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.