Trio Business Intermediaries Blog

New Broom

Thu, 16 Jun 2011 00:20:00 GMT

Soon to be taking on a new business or an active part in an existing operation?

Some of the issues you may want to consider to make the new regime flow well:

Talk, communicate, chat, email, liaise, - keep everyone feeling as though they’re informed and part of things

Ensure everyone knows the basics – where the offices will be, where to park and how to get there, who’s moving where and when

How any surplus team members will be deployed

Clear responsibility for maintaining client contacts and ensuring they don’t even notice things have changed

Another group need to be responsible for ensuring suppliers are on top of the changes and ready to integrate new locations or systems

Who is mission-critical and what is being done to retain them?

Any disparities between terms of employment, bonuses or perks

Duly Beloved

Wed, 11 May 2011 03:11:00 GMT

Even if you’re not thinking of selling or inviting investment into the business take a few minutes to think about how you would fare if your business was subject to a due diligence review.

Would your systems sustain your absence and the anticipated growth in activity?

Would a history of strong financial management be evident?

Can you demonstrate continued growth as well as opportunities for the new owners?

Tax returns are considered second prize to an audit as they are third party verification; got those all sorted?

From a buyer / investor’s perspective does everything in the business scream ‘under control’ – marketing, operations, finance?

Up the Ante

Wed, 06 Apr 2011 03:33:00 GMT

If you’ve decided to pass your business onto family / staff or you’re heading towards selling, you will want to maximise the value of the business.

The list of things you can do to improve that valuation is long and been discussed here before so, here are a few more big ticket items:

Put the sale or succession on the agenda – monthly meetings, accountant’s review, business plan

Identify the personal expenses and assets in the business (we call them the ‘boats n benzes’!)

Take a holiday – a long holiday – without being in touch. Fix whatever falls apart in your absence so that you can disappear forever

Get the tax and structure sorted – some structures are more advantageous on sale

Focus on profits – hard profits beat blue sky every day

Negotiating around the obstacles

Wed, 23 Feb 2011 05:48:00 GMT

In the world of business sales and transitions we see a lot of negotiations.

What are your top tips for effective negotiations?

We recommend the two ears – two eyes – only one mouth approach. Look and listen twice as hard as you talk.

Other suggestions include:

Confirm your understanding of the matters you agree on and those you differ on

Be clear about what you can offer up – it might be of little value to you but mean a lot to the other side

Use a go-between / intermediary who isn’t emotionally or financially attached to the issue

Break the issue up into smaller pieces collecting information and agreement as you go

Make sure all of your team are actually on the same page – don’t assume!

Map out worst case / best case / likely case – the process itself can be very enlightening

Accumulate facts and hard evidence

Recognise different negotiating styles – ‘no’ doesn’t always mean ‘no’

You must have plenty to offer this discussion – what negotiating strategies do you find work well?

Will it to be

Wed, 05 Jan 2011 05:25:00 GMT

Where do your will and your business intersect?

Hopefully in the cold hard light of day with all interested parties present and accounted for!

To avoid unnecessary angst it’s advisable to discuss your plans for the business in the event of your passing.

Please don’t assume that everyone involved – partners, children, advisors – has guessed your plans for the business and are in agreement.

If, say, the business is to be shared between children some important matters to consider:

Are you sure your partner doesn’t want to run the business or indeed need to run the business if the children are still minors

Do all the children want to be actively involved in the business?

If not, how will the business be valued?

How does the business sit with other assets e.g. cross guarantees, landlord / tenant?

Are roles within the business clear or promotion paths plain?

Has an ‘advisory board’ or a mentor been appointed?

What more can be added to this list from your experience?

Messy Business

Wed, 22 Dec 2010 04:56:00 GMT

We’ve just had a call from the liquidators of a business we were asked to value about 12 months ago.

We’re disappointed for the directors and staff that it’s come to this but not really that surprised. Even a year after the event the issues that really struck us included:

The accounting records were not up to date and pretty messy

The directors were not all on the same page

A manager, who was not an equity partner in the business, was often asked to do the ‘dirty work’

Director’s loan’s terms and conditions were not documented and some elements not properly recognised as liabilities of the business

Despite deteriorating results the expensive trappings of boats and cars were fixtures

Sale Ready

Thu, 18 Nov 2010 02:08:00 GMT

Good to see a few potential sellers putting their noses above the parapet!

If you’re waiting around to see if the business-sale market picks up use the time wisely by making sure:

Everything that can be documented is documented – procedures, arrangements with suppliers, customer contracts,

Key staff are happy with life at your business and not about to bolt off – you need continuity below you when you depart

Marketing is pushing towards clearly articulating your competitive advantage. Buyers need to feel the business is unique and a cash machine!

You don’t take your foot off the accelerator – you need to demonstrate the business is full throttle ahead and really going places

Long serving suppliers are being nurtured but you have new products / services on your radar to show the growth potential.

It’s Confidential

Wed, 13 Oct 2010 06:24:00 GMT

Confidentiality is a critical issue that influences everything we do in business sales and valuations.

It’s plays out in a number of ways:

Ensuring staff aren’t unsettled by tales of a pending sale or change of ownership

Preventing competitors using news of a sale to undermine existing customer relationships

Maintaining dealings with suppliers, sure of an ongoing stream of orders

Customers may become unnerved by rumours of a change of ownership, concerned about continuity of supply

Professional advisors, whilst likely party to the planned sale or valuation, may leak an anticipated sale to other parties in the hope of securing a buyer

Whilst keeping all of these balls in the air, there’s another side to this whole confidentiality issue that warrants some thought:

How can someone buy the business if they don’t know it’s for sale?

Where do you sit on this vexed question?

Demonstrate a good marketing strategy

Thu, 16 Sep 2010 02:22:00 GMT

There’s no doubt that marketing and making sales is tough in any business.

If business buyers can see that there are great sales and marketing machines already in place and actively churning away then they will feel much more comfortable about the transition to them as the new owner.

So if you’re thinking of selling your business we’d recommend putting some effort into documenting your sales and marketing systems, collecting good examples and shining a light on your achievements with customers and prospects.

Some of these areas might include:

Graphs and other visual aids showing sales / marketing / leads / customer service / online stats

Key sales and marketing people (NOT the outgoing owner)

Smarten up the website, including testimonials and recommendations

Tidy up the customer list and enhance it with each customer’s tenure, avg sales per month, industry etc

If you don’t have a separate bright, shiny marketing plan then at least a marketing strategy section in the business plan

Getting around the banks

Thu, 26 Aug 2010 01:06:00 GMT

We’d like a $ for every time we’ve mentioned that the banks still aren’t lending and the sentence is barely complete when the response comes back something like “I know ! followed by a long story of the short shrift from what’s historically been a friendly banker.

Well we can whinge or we can work around it.

Some ways to address the funding issue might include:

Sellers offering vendor finance – Ok so not an original thought but has the huge benefit of backing the business to be sold.

Buyers asking for vendor finance – you don’t ask you don’t get and the appetite for this possibility is being driven by necessity

Package the business professionally – it is now even more important to present the business, projections and upside in a way that the financiers can easily understand. The business case needs to hit their cash-generating hot buttons

Consider other funding sources – angel investors want equity and a say but a smaller bit of a bigger pie has to be a consideration

Staged Acquisition – consider an acquisition over time with a pre-agreed timeframe and terms to provide certainty for both parties

Comparing apples and oranges

Thu, 17 Jun 2010 04:38:00 GMT

It’s likely that while looking for a business to buy you’ll spend quite a bit of time and look at many, many businesses

What started out as a very clear set of selection criteria becomes murkier as you look at a number of businesses and compare them.

You’ll refine this process for yourself. In the meantime we have some suggestions:

If your gut tells you it’s got legs – push on. If your gut tells you it’s a dog – run. If your gut is giving you a niggling feeling of indigestion but you generally like the fundamentals – that’s normal; keep digging.

We have a theory that buying a business is like finding a life partner – there’s only one! Just because no one has bought the business yet doesn’t make it a bad business. The best owner and the business just haven’t met yet.

No two or twenty-two businesses will ever exactly fit with industry benchmarks - there’s always some reason the benchmarks don’t apply so don’t rely too heavily on them

All successful businesses have a competitive advantage – that thing that sets them apart from the rest. Average performing businesses often just need their competitive advantage refined. A well priced plodder business will likely represent more opportunity than a top flight winner that may have run its race.

When you’re looking at the financials, comparing businesses, make sure you are comparing like with like i.e. have you considered the commercial rate of rent, what owners need to be replaced by staff, what revenue streams are fixed / contracts vs discretionary subject to an economic tsunami?

Cash is King

Fri, 09 Apr 2010 09:23:00 GMT

Well there’s no new news in this statement is there?

Cash has always been a critical element of any business.

What then are the business valuation and sales implications of the cash elements of the business?

Underfunded business are usually underperforming businesses

If cash is doing the triple bypass and going straight into the pocket then it is extremely hard to prove to a prospective purchaser / investor that it ever existed. If it’s not in the books it never happened as far as the sceptical advisor and the potential financier are concerned.

Sure some industries are notorious for skimming cash off the top but you can’t have two bites of the cherry – if you take advantage of some ‘free’ cash, you can’t then assume that you can reap the benefits of that income when you are looking to sell or attract an investor.

Good cash flow = good relationship with the business’s financiers = better prospects of having the acquisition funded by that financier.

Cash is mostly tied up in Accounts Receivables (Debtors) and Inventory (Stock) – it’s a strain on the new owner / investor to have to fund stock that can’t be quickly turned into debtors and then into cash. Work towards keeping both stock and debtors as low as is efficient.

The level of cash demand often equates to the life cycle of the business – early on there is huge cash demand to fund growth, later in its life the pressure is on the business to maintain assets and develop new offerings.

Risky Business

Mon, 01 Mar 2010 02:25:00 GMT

There’s risk everywhere you look when buying or investing in a business.

If you’re looking to sell or attract an investor you need to be on the front foot addressing those risks for the prospective purchaser / investor before they even think of them.

Just some risks you might want to consider:

With the outgoing owner goes all the customers

The GFC isn’t over

Potential regulation changes

Key staff won’t stay

Interest rates are likely to be going up

The outgoing owner will start up elsewhere and take all our business

New technologies in the industry

We know for sure there are ways to mitigate all of these risks for a prospective purchaser / investor. Contact us if you need a hand addressing any of these issues.

Investor Relations

Tue, 02 Feb 2010 05:05:00 GMT

We are often asked to do business valuations as a precursor to new investors coming into a business.

If the business needs a cash injection the potential investor, coming in on their white charger, saving the day is difficult to look past. The realities though are that there are a number of potential scenarios that need to be considered before we’re all sitting around the table at the celebration lunch:

Will the new investor acquire current owners’ equity or dilute the total ownership pool?

Does the investor bring new $ into the business or just take out existing shareholders?

Will the investment be made in tranches and what will the hurdles for further contributions be?

What impact will there be on Management and Board structure?

Assets that might sit on the periphery of the business like non-core assets or Director’s assets – how will they be treated?

What happens to the debts / borrowings – will they be taken on by the new regime? What about owner advances to the business – repaid or forgiven?

Then of course there are Director’s guarantees currently in place.

If new investors are being brought in for their expertise or contacts – how will the success of that strategy be measured? Is there a fall-back position if the strategy or relationship fails?

Would it be better to sell the existing business to a completely new entity?

What are the tax implications for existing owners?

What happens to the Management team and who decides that?

Hidden Nuggets

Mon, 04 Jan 2010 01:39:00 GMT

In the work we do in Business Sales and Business Valuations we often speak with business owners and managers about their financial statements (Profit and Loss and Balance Sheet) and wonder why they are not being used more as tools to manage and grow the business.

Some opportunities the Balance Sheet present to keep track of the business:

Stock / Inventory – make sure you have a complete list that adds up to the figure called “Stock” and then go through that list and make sure everything exists and is valued at the lower of what you can sell it for or what it cost to bring in.

Receivables – again make sure you have a list that adds up to the figure for “Debtors” (people that owe you money) and go through that list to make sure all are collectible. A good reality check is required here.

Trade Creditors / Other Creditors – your work is a bit tougher here. This time you’re looking for what’s NOT on the balance sheet. Some possible omissions include full employee entitlements (annual and long-service leave,) taxes payable, superannuation payable and commitments you’ve made for new equipment that’s not yet delivered.

Related party loans – hey, we’re accountants; we know the jiggery and pokery that goes on in businesses! Reality hits though when a buyer or investor comes in and looks at the real substance of any loans.

Any issues you find with these values need to be addressed post-haste. At a minimum making the adjustments will give you a clearer picture of your assets and liabilities. A new owner or investor / partner will go through all those assets and liabilities with a fine tooth comb and discount any that look dodgy.