Secondly, what is the current status of your business?
Do you understand what state your business is in over a range of critical areas?
Financially, operationally and strategically? Is it indeed a money making enterprise or a job? What are the prospects for growth?
Can it remain competitive and what is the competitive environment telling you about your business? What are the assets of your business, and is there any goodwill?
Understanding where your business is financially, at all times, is a fundamental element of good management practice. Do you have cash in your business’s working account, or do you run on overdraft? How much cash do you have in reserve at the end of end month after you have paid your bills and yourself a fair wage or drawing? What forward orders does your business have? if any? How much do clients owe you for work that you have done i.e. from products or services supplied, at the end of each month, and how long do they take to pay you? And on the other hand, how much do you owe your suppliers every month, and what are your credit terms? All the above helps this determine the amount of working capital a buyer will need to consider when buying your business, so it’s a good idea to get a handle on it.
Is the business operationally appealing, and is it structured with easy to follow procedures in place? What are the critical points in the business’s workflow in product or service production delivery where profits are made or lost? What can be done to improve profits and minimize the risks of losses at these critical points?
From a strategic stand point, what are the plans in place or current resources deployed to help continue operating the business for the years to follow? What do we do well that makes money for the business? What are the objectives of the business? What are the goals set for each financial year to achieve the overriding objective of operating profitably and making money?
Although most small businesses are presented as a PEBITDA, or in other words, what the earnings are for one working owner including PAYG wages paid to them, a business really needs to be a money-making enterprise and earning an owner more than he/she would working in someone else’s business for it to be readily saleable, or why would someone want to buy it? Therefore, a PEBITDA over say 100k p.a. is much more desirable than a business that is showing a 60k for instance. This is not to say businesses at the lower levels are not saleable, because some buyers may want an improver type business, but it does make selling a little more difficult, as it reduces the size of the buyer pool to ‘cash buyers only’ and increases the focus on the tangible asset values, rather than earnings or goodwill. Afterall Goodwill is what a business sells for over and above the value of the assets.
What are the prospects for growth in your business that can be passed onto the next owner? Understanding what could be done with the business by a new owner is important; it is a question that is often asked. Think about putting together a wish list of things you would change that would grow the business if you had more time or capital can help with this.
Can your business remain competitive in the coming years? Will there be technical advances or disruptive technologies that may come into play, that will affect the business? What is the competitive environment telling you about your business? Do you often compete on price rather than quality or service? Is it easy for new entries to come into the market? Do you have some competitive advantage that you can leverage?
For more details on the above, and an action plan for selling your business, call me or one of my team for a business assessment today.