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Is it time to exit your business?

In the challenging economic climate since the GFC, many SME business owners have asked: Is now the time to exit my business?

According to the Australian Bureau of Statistics (ABS), from 2009 to 2013, increasing numbers of business owners answered yes to that question and did exit their business. And despite a drop in the exit rate in 2013–2014, many business owners are still considering their options.

Fin year Entry rate % Exit rate % Variance %
2009–2010 16.7 13.1 3.6
2010–2011 13.9 13.5 0.4
2011–2012 13.5 13.1 0.4
2012–2013 11.2 14.1 -2.9
2013–2014 13.7 12.7 1.0

Entry rates versus exit rates of Australian businesses 2009–2014
But you don’t need to wait for desperate circumstances before you develop an exit strategy for your business. In fact, developing an exit strategy can help both to prepare your business for sale and/or to make your business more competitive.

If you want to continue to operate your business, how can you safeguard your business into the future and avoid being one of those exit statistics?

To be competitive, SME business owners must be outwardly focused. In addition, you need to know what is driving the value within your business, and what is not driving value. This means capturing not only financial information and tangible sources of value but also intangible drivers such as market share, brand, point of differentiation, margin and customer satisfaction.

Alternatively, if you want to sell your business, you will need to provide the buyer with proof of the value of your business and reasonable assurances of future profitability. The intangible assets mentioned above are crucial to the competitive advantage and future earning capabilities of an SME business.

But how do you identify and measure those intangible assets and drivers? In many SMEs an information gap exists in this area, which consequently can impact the value of the business and make a business more difficult to sell.

Whether you eventually decide to stay and forge ahead or to exit your business, an important starting point is to know the value of your business.

Do you know the value of your business?

You might be surprised, as a US-based survey found that 95% of business owners thought that their company was worth more than it is in reality.

Dr Ralph Bradburd, Professor David Wells and Chuck Richards, CEO of CoreValue, in their white paper ‘Transferrable Enterprise Value – The importance of quantifying intangible value drivers in SMEs’, stated that enterprise value (EV) tries to measure the ‘true worth’ of a business. It is often referred to as the takeover value.

For publicly traded companies, EV can be derived from shareholder reports, financial statements and other metrics, but for smaller businesses most of this information is not available and the information gap can make it very difficult to acquire. This information gap includes personal relationships with suppliers and customers, often poorly documented operational information and processes, and the fact that smaller businesses tend to operate in narrow markets with specialised products and/or in specific geographical areas which limits comparisons with like businesses.

Gibsons can now help you to develop a comprehensive assessment of the value of your business using CoreValue. CoreValue is a software application that analyses where the value is being driven from within your organisation and then provides you with practical and achievable action plans to address the issues that impact on the value of your business.

By using the CoreValue valuation tool, we can help you find out what are the value drivers within your business. From there we can help you to build on that existing value.

For more information on how to create a business exit plan or specifically how CoreValue can assist your business, contact Gibsons and speak to one of our experienced business consultants.

Thanks to Steve Bryant from QMI Solutions for providing information about the CoreValue database and software that is included in this article.