Archive: Mar 2015
Comments Off on Devising An Exit Strategy
When the time comes to move on from your business, it pays to have an exit strategy in place. This helps to assure you that you will get the best possible outcome from parting ways with your company.
A key factor here is to identify what you perceive to be the best outcome:
What do you want from the sale? Who do you want to sell to? Can you use this as leverage to achieve a better price?
Evaluating the potential buyer is an essential part of creating an exit strategy. By implementing some knowledge and planning, you may be able to ensure a higher and more deserved price.
For example monitoring competitor behaviour would mean that you could sell at a time when they are looking to expand their business through acquisitions. Alternatively if you can see a competitor or prospective buyer undergoing strategic issues, you may be able to suggest your business to help fix that.
Ideally you would prioritise making a sale to someone in the industry because the buyer will understand your business and its market. Therefore they are likely to pay more for the business. In addition a trade buyer will know the surrounding market and how to optimise your business to their advantage, so everyone will be happy.
A successful exit necessitates the right team; completing a readiness assessment; and a finely tuned exit or succession plan to make sure transition is handled professionally. As the owner, you’ll need to analyse certain factors within the business itself to see if you are ready to perform an exit at all.
Essentially, you want to maximise enterprise value: the current value of the business for the present owner, how this translates to the new owner and its future value for employees and potential buyers. By way of preparation, it’s vital to get the business ready for its transition. Below is a list to help consider the external and internal factors that help negotiate impact value. It also helps to identify what factors are within your control, and those which aren’t.
These include, but are not limited to:
- Access rights, licenses, patents or brand names
- Products pertaining to a portfolio
- Having a strong and experienced management team
- Risk reduction strategy
- Technical expertise or specialist knowledge
- Key technologies in place
- High-profile customers or niche markets
- Key locations or launching pads for expansion (and avoiding the costs of entering a new market from scratch)
A lot of smart business is playing a long game. So longer term ways to achieve a maximum are through social media, PR, guest posting and providing events to strengthen presence and public perception. Other approaches such as networking and talking to influential industry executives helps to build up a reputable brand, which will of course lever a greater value when the time comes to move on and exit your company.
It’s never to early to start planning your exit so talk to us on 01392 432654 about your strategy.
Comments Off on ‘Understanding Your Accounts’ Part 1 – As long as I’m making a profit, that’s OK – isn’t it?
Well, it could be, but profit it is only part of the story. Financial information is there to tell you about your business, so to test how much you know about your financials, could you answer yes to the following questions:
- Do you know how much cash you have in the business now?
- Do you know how much cash you will be collecting from customers in the future, and more crucially, how much you will need to pay out to your staff and suppliers, or the taxman?
- Do you know who your most profitable customers are, and which ones simply fill your time?
- Is your future business strategy properly supported by effective business plans and budgets?
‘But I just don’t have the time to look at that detail’
Many small and medium-sized business owners or managers have schedules so fully focused on developing and promoting their products and ensuring operations run smoothly, they don’t have time to be the finance manager too. An external accountant is hired to complete the tax returns (and for limited companies, the statutory accounts), and often that’s the only form of financial information the business owner will have access to.
‘Tell me about the future not the past’
You obviously need to be compliant with Government requirements, so external accountants have a very important job to do. But tax returns and annual accounts are history from the moment they are produced. You are missing out on an opportunity to understand exactly what your numbers are telling you about the state of your business now and for the future.
‘So what can my accounts tell me about the future?’
As the title question suggests, most people understand profit and loss; so long as income is greater than cost, then great, you’ve made a profit! However, by understanding the underlying details you can reveal much more about how successful you are, or not, as the case may be.
‘Give me an example’
Have a look at your total overhead costs and see what percentage they are of your turnover (total overhead costs, divided by turnover, times 100 = overhead %). Do you know if all of your products and services are producing a profit % that is greater than this? Can you improve this in the future? Could some of your sales lines actually be making a loss after taking overheads into account?
This first blog in a series on ‘understanding your accounts’ has started by raising some of the opportunities for improving your profits and cash levels, just by taking a more in depth look into the figures.
My next blogs will look at:
- The importance of your balance sheet and how to “read” it
- Getting under the skin of your numbers in order to grow your business
Blog by Richard Colling, Associate Director at SouthWestfd, email@example.com