How do you maximise
the value of your business? One of our principals Gary McLoughlin
spoke to business owners in Auckland.
Gary is the Principal heading the CFFAS
team (Corporate Finance and Forensic Accounting Services) and has
years of experience conducting business and share valuations,
including unlisted equities.
The seminar was focused on business
owners looking to exit over the next 3-5 years. Interestingly,
accordingly to the latest ANZ Privately Owned Business barometer,
62% of Zealand business owners are over 50, 45% want to sell and
only 11% have a plan.
"When you sell your business" said
Gary, "you naturally want to get the best possible price for it,
especially after spending so many years building it up with blood,
sweat and tears".
But with a tidal wave of businesses
that will be changing hands in the next 3 to 5 years, it is
essential to be ready.
If you want to sell your business and
get a good price, you have to plan well in advance. As Gary said
"You have to dig the well before you need a drink."
When owners are selling, there are a
number of ways to do it but they fall into two key areas; voluntary
for retirement, raising capital, mergers, acquisitions etc. and
involuntary, at times of sickness, death or dispute.
Any valuation of a business typically
falls into one of three methodologies.
- Earning Approach,
- Market Transfer and
- Net Asset Approach
The best by far is Earnings Approach
because this is where the maximum value of your business is
realised. The least attractive methodology is the Net Asset method,
which merely looks at the cash value of your assets and attaches no
value on brand, earnings, clients etc.
"Basically" Gary points out, "when
buying a business, you are making payment today for the right of
access to cash tomorrow based on the business history, future
forecast and the state of the business. When selling, you have to
justify the price and any questions that add risk or uncover
surprises will erode the value."
So how do you maximise the value of
your business? Gary says that every business owner knows where the
magic lays within their business. "Owners know why their business
is special and where that magic is. They know what makes them stand
out from other companies.
"They also know where they are
vulnerable and what keeps them up at night." He continued, "Owners
need to work on the magic and remove the vulnerability."
There are five key areas Gary
highlighted to get right when looking to maximise the value of a
business.
- A Good Management Team: If a business relies
too much on its owner it is difficult to value and sell. A well
trained team that can perform without the owner is very
important.
- Management Reporting Systems: Everything
should be ship-shape. Ensure that the financial accounts are clean
and audited if possible. This means it's a lot easier during the
due diligence process, there are less surprises and you get a
better price.
- Profit and Cash flow: It goes without saying,
but that means removing other liabilities, a clean balance sheet
and removing items such as the boat and anything that clutters the
view.
- Good People: Below your management team you
need good people. You need to ensure they stay around after the
sale. Give them reason to want to stay.
- Register IP: Too many NZ businesses undervalue
their IP and processes etc. Get your intellectual property
registered. It has value.
"Nothing sells a business better than
good growth prospects and good product development", says Gary "but
if there is one thing I would like you to take away is this. PLAN
FOR THE SALE - And contact me to discuss your plans."
For further information on how to maximise the value of your
business, visit our website www.whk.co.nz or email gary.mcloughlin@whk.co.nz