This article first appeared in the December 2024 issue of ProPack.pro, authored by Peter Fotiadis.

About a year ago, one of my clients, Tom, took me aside and told me he was ready to sell his business. Tom (not his real name, obviously) had proven himself to be a very successful owner who had grown his business from scratch over many years, to a turnover of more than $20 million. Tom was honest about his motivations – the passion was waning, industry conditions were only getting tougher, and he was ready to do something different with his life.

We sat around the table in Mattingly’s Yarraville office in Melbourne, whiteboard marker in hand, capturing Tom’s key needs and scratching out the possible exit options. After the workshop, despite Tom wanting out, we all agreed it was not the right time for Tom to sell as the business wasn’t yet prepared for sale. We could do some ‘renovations’ with a defined concerted effort that would have a multiplier
effect on the value of Tom’s business.

Tom’s story is not unique. Many Australian businesses are going through a period of ownership change. Part of the reason is the demographic window of long-standing business owners – the Baby Boomer generation are well within the retirement zone, well-earned, I should say, reaching completion point of illustrious careers having toiled away tirelessly at their craft. It is never forever, and this cohort are looking for a lifestyle change, to take some money off the table, and perhaps become more risk averse when it comes to business growth decisions.

Unfortunately, for various reasons, it is not often an option to pass the baton to children or family. Selling the business is the next best option.

The reality for Tom was that a year ago, he was not going to achieve the value he was after. Now, through getting the house in order and executing several key initiatives, the business has improved towards its full potential, and this will translate to higher sale proceeds.

Both as a buyer and seller representative, I often come across the following pre-sale opportunities to build value in any business:

1. Can the management team operate without the owner?

A huge red flag for a buyer and common issue in small to medium business sales is the heavy reliance on the owner. If you feel your business suffers from owner dependence, it will be important to take the time to build a capable management team, and couple this with a re-design (reduction) of the owner’s roles and responsibilities. And stick to it!

2. Are customer and supplier relationships strong and operating under contract?

It is not imperative that all customers sign up to contracts but having clear and legally sound contracts provide a buyer more certainty. In the absence of contract, you will want to demonstrate customer purchase order behaviour that indicates loyalty and predictability to give the buyer comfort that the sales will not walk out the door after they have purchased the business. Likewise in relation to critical suppliers that are not easily substitutable.

3. Are the operating assets well maintained and within effective life, and is inventory on hand appropriate?

The conversation will always turn to the assets being used in the business, and whether they are reputable brands, in good working order, and ideally not needing replacement or overhaul in the near term. In terms of inventory, it is that you have exercised purchasing discipline, are realistic on the net realisable value of stock on hand and have processes to objectively assess value impact of ageing and obsolescence.

4. Do the financial statements appropriately reflect the business’ performance?

At the end of the day, you are marketing your own business to a buyer. The numbers will tell a story, but there are some steps that can be followed to best present the business’ financial position. Engaging your accountant is an obvious step, but also instituting some commercial disciplines such as improving cash collections, supplier payment terms, keeping private expenditure out of the business, and making smart capital and inventory decisions is necessary.

Aside from the main items above, there are many other areas of opportunity to deliver business improvement to enhance the value of your business – whether selling or not: operational efficiencies, simplification of IT systems, boosting organisational talent, and improving your supply chain. It is important to appoint a team to help identify, prioritise, and deliver these initiatives to ensure you maximise your business’ enterprise value.

Peter Fotiadis is a co-founder and partner at Mattingly, a boutique commercial advisory
firm specialising in strategy to execution, proprietary deal flow, and commercial solutions.