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ASB creating futures.

   
  Ideas and Advice
   
MUSCLING UP FOR MARKET
  Most business buyers aren’t looking for a risky purchase; they want something reliable and robust. We ask the experts how to get in shape
   
 

A business that is performing on all cylinders is one that will attract interest. Performance could either mean growth or, in an economic downturn, stability. ROI is always the key to the deal so buyers will pay a premium for something that’s performing well. If they get a whiff of internal or external problems, or feel that their own strategic guidance and input might improve the offer in their favour, the money being offered will reflect this.

Keeping a grip on your own affairs is tough enough but what is happening in the general operating climate will also help or hinder sales. Obviously, an overall economic downturn will result in corporate belt tightening. At the same time, potential buyers will be more discerning and aware that a better bargain may lurk somewhere else. Don’t be depressed, but do be realistic about your expectations.

Sudden decision-making or a need for a quick sale will almost always mean a price reduction. The longer the time to prepare for sale the better the outcome, at both a personal and business level. Get a periodic valuation of the business and also ensure all legal and accounting matters are up to date and compliant.

Kevin Reilly, ASB’s National Manager, Key Accounts, says most buyers would have a realistic understanding about what is, or is not, beyond the business owner’s control. There are, however, ‘micro’ signposts that buyers will look for in deciding if an operation is wonderful or weak. Fittingly, he says, the factors that make a business attractive to a buyer are also the ones that will help the business owner regain momentum in the wake of events like a global financial crisis.

Successful companies, says Peter Robinson, ASB’s National Manager, Business Solutions, are those with strategic and tactical plans that flow seamlessly into high quality financial forecasts. They demonstrate long-term viability, sustainability and liquidity.

“On the corporate catwalk, the new combination has to be an offering with both brains and brawn. Enough muscle and tenacity to be a market force but also with the intellect and grey matter to convince a prospective owner, or successor, that this is a smart venture to buy.”

The end is nigh if the pace of external change outstrips the ability to change internally. Read the signs and the warnings they may contain. Otherwise, not only will there be no business to sell, but no business to operate.

Kevin Reilly says a good business plan will have the KPIs and other material that will allow someone to make a diagnostic assessment of the health of the operation. Businesses generally fail, or fail to be viable, for one reason: cash. They are either losing money or they have already run out. Yet the symptoms can be indicative of a myriad of possible causes.

Far from wanting to waste time on diagnosis or damage control, the incoming owner will be immediately looking for ways to create and manage change. They will want to see evidence of an enterprise that is durable and robust enough to allow for expansion and development. Moreover, the strategy and forecasts need to be capable of execution via the existing team, allowing the new owner to work on the business rather than in it.

The Hayes Knight Business Improvement Team say external events are hazards that most business owners could neither forecast nor react to quickly. Yet having various levers and disciplines in place to protect the all-important cash flow provides some comfort and succour, as well as the ability to weather the effects.

In business, there are icebergs. Basically, like the Titanic, a business will sink or be unattractive if it doesn’t have the mechanisms or capability to see the hazards. Not to the point of obsessiveness or paranoia, but in navigating treacherous waters you have to know what to look for, how to look for it, be able to react in time and avoid actually hitting the iceberg—which would be akin to having a full blown cash crisis.

Quite simply, if you don’t have a plan you have no idea what to be on the lookout for. Anybody assessing your business who does not see a comprehensive business plan will most likely walk away.

A perennial message to clients is not to sit back and fly by the seat of your pants. Short cuts and shoddiness aren’t currently attractive commercial traits. Like any type of training or conditioning, you must have discipline and routine, and put in the hard yards. In today’s climate you must practice good governance and have all the hallmarks of a sound and prudent business practice.

Ironically, adds Kevin Reilly, there will be some businesses that have survived the recession only to falter now. “A once strong but depleted balance sheet kept them alive during the recession, but with resources having been exhausted, there is nothing left in the tank to exploit the advantages of an economic upturn.

“Anyone adopting a focus solely on traditional measures such as P&L may find themselves short-changed. More important indicators of good buying or good business are equity, the vitality of the balance sheet and sustainable cash flow. ”

Hayes Knight says that ‘new thinking’ will help lead to new ways of doing business and grooming your enterprise for sale.

Current customers are important, but businesses should also be looking at who else to target down the line. To attract them you may have to change your attitude to issues that are important to customers in their purchase, or relationship development decisions. So instead of dismissing issues like sustainability or green business, think instead about what opportunities there might be in growing a base of people who find such concepts essential.

Finally, says Peter Robinson, in preparing a business for sale or looking at one to buy, be very certain about whether key relationships are personal or rest with the enterprise.

“Personal relationships are the harbinger of more formal business tie-ins, but if they rest with one person alone vulnerability becomes an issue. This is also part of instilling a sense of governance and discipline.

“Those looking to buy, or those who are lending the money, have well and truly returned to a time of business prudence and accountability.”

To understand what purchasers want, company owners should adopt the same mindset. Once they can see their own business the way a buyer might, it’s time to fix the flaws and get the enterprise in shape.

Corporate calisthenics

Differentiation is often a precursor for bulking up the balance sheet. A good starting point is looking at what everyone else in your sector is doing—and then daring to be different.

  1. Be very clear about the customers you want to serve and do business with. Define who they are and even dream up an archetypal Best Customer profile.
  2. Spell out precisely and concisely how you are different, and give tangible evidence.
  3. Then think of on-the-job ways of making this crystal clear to staff and clients—and prospective purchasers.
  4. Know how you make money by understanding your revenue sources. Come up with how you’re going to increase revenue, where your costs are and what it will take to keep profits flowing over the year.