Trio Business Intermediaries Blog

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

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

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.

• 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?

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.