Setting your Business up for Success

Recently on Business Lifecycle TV, we discussed Intellectual Property and how it’s possibly the most valuable part of any business. Having a separate holding company in place to house your IP is a hugely important – especially if you ever plan to sell the company. Having the right corporate structure in place will really help to maximize the value of your firm. Today we are going to learn more about what it takes to sell your business. Joining us for our discussion is Warwick Peters an accredited business broker with Ray White. Warwick previously worked in the financial services industry and in real estate. That experience has helped him to understand how a business can profit and grow.

The sales process as a broker starts with trying to figure out what the client wants to sell. That’s not always a simple process. You first have to determine if the business is something that’s marketable. Then Warwick has to determine if the business is profitable and competitive. The accounts of the business are hugely important in order to determine its saleability. Business owners can often have a very unrealistic view of their company. It’s Warwick’s job to clarify that view.

A good example of this are businesses that are very cash heavy. A car wash, for example, takes in large amounts of cash. That amount is almost never accurately accounted for in the books. The reason is obvious. There is a lot of temptation for owners to pocket some of that cash. But there is an invisible cost to that practice. You might be saving 30 cents on the dollar in tax payments but it will cost you much more. For every $10 thousand the owner is taking out in cash it will end up costing them $40 thousand. Why? Because that revenue isn’t reflected in the books it will diminish the selling price of the business when it goes up for sale.

Another tool that business owners can use when valuing their business is something called EBITA. What’s EBITA? EBITA stands for earnings before tax, interest expense and amortization expense. It provides a clear picture of a company’s finances and to gauge a company’s operating profitability and provides a good indication of cash flow.

A perfect business that is going to be put on the market needs a number of things. Those include the accounts and the history of the accounts. A document outlining the job descriptions of everyone involved in the business. There also needs to be an operations manual detailing how the business is run. Location security is also very important. Where is the business located? Is there a lease or is the property owned?

The operations manual is extremely important for a business sale. The perfect example of what the perfect manual should look like comes from restaurant franchises. The franchisee is provided with a manual that details every aspect of the business. From how the food is prepared to how the books should be kept. The other extreme is the local fish and chips shop. The owner takes money out of the till, nothing is written down, no details on food preparation or suppliers. Those systems have to be put in place before the business can be put on the market. You never know when you are going to have to sell the business.

Warwick likes to describe his advice with three words: plan, plan, plan. Always plan on what your future is going to be and what you are going to need to make that a reality.

CONTACT
Warwick Peters
[email protected]