Anne-Maree Denaro - Wednesday, September 30, 2009
Some of the factors influencing business valuations right now (yes there is some upside!!)
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Many businesses are sitting on lower returns for the year to June 09. If that’s an obvious blimp on the radar against previously strong results see the following point. If it’s part of a steady decline it’s not a good look.
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Many businesses are in good company – very few businesses were immune from the effects of the GFC so there’s a good ‘story’ or reason things went south. Inexplicable profit downgrades have a deeper negative effect
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The key customers have either slowed their activity or gone out of business. That’s a negative but also presents an opportunity to pursue old and new revenue streams.
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The banks aren’t lending thus constraining growth within businesses with strong fundamentals and limiting the number of funded buyers.
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Higher staff retention with employees staying put in uncertain times
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High business failure rates mean that the number of competitors is generally decreasing.
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The geographic location of key suppliers / customers will be critical – the UK is a basket case but China is still hanging in there.
Anne-Maree Denaro - Friday, September 18, 2009
As a prospective business buyer are you concerned about pitching into the business sales market knowing that most businesses have recently been doing it tough and worried that sellers will try to window-dress the results?
A few thoughts from those of us who sit between business buyers and sellers:
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Nothing new under the sun here! Buyers have always been cautious about everything they’ve been told and sellers have always tried to put the best shine on the business. Buyers who make successful acquisitions make a measured assessment of the risks.
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One of the many factors in coming to a business valuation is historical performance – there are plenty of others.
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Asking the same questions lots of different ways will help to uncover exaggerations e.g. ‘How long have your top 10 customers been with you’ and ‘I’m thinking of the 80/20 rule – where does 80% of your revenue come from now, compared to 2 years ago’ are both delving into customer retention
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Revenue is not the only measure of success in tough times; think payment terms, customer retention, online vs instore sales, contracts / preferred supplier status vs on-offs.