It’s Not Just the Numbers That Add Value
Add Value to Your Business
Add value of a business by focusing on more than just the numbers. Of course the accounts are important to a buyer, but they are only part of the picture.
Here at Succession Plus UK we conduct a thorough non-financial evaluation is a thorough assessment of the operations of a business and determines where there is risk. We score various areas of the business. It is these areas that ultimately affect the multiple you can achieve on sale. These are also the areas that are largely in your control, and some can be improved relatively easily.
Some of the non-financial questions we ask of the business owners are:
1 Do you have an up to date company profile and website?
2 Do you have all of your intellectual property registered and up to date? For example, business name registrations, trademarks, patents.
3 Do you have monthly management meetings, and do you have minutes of those meetings?
4 Are you meeting your obligations re employees — leave balances, pension contribution, award rates, payroll tax, workers compensation?
5 Do you have the lease agreements for your premises?
6 Are your company registration documents up to date? e.g. Articles of association, shareholder agreements etc.
7 Have you documented key processes, job descriptions and procedures (such as a safety manual, induction manual) in your business?
8 Do you have a board of directors or advisory board and do you communicate regularly?
9 Is your IT system meeting your needs?
10 Do you have back-up facilities in place and a disaster recovery plan?
A prospective buyer will see the non-financial measures of your business as a reflection of how you manage your business – your attention to detail and compliance, your ability to plan and execute, how easily the business can operate without you, the quality of your staff, and whether they are locked into the business. They will also look not just at your financial performance, but how well you manage and use financial information.
Your approach to governance and compliance will be assessed. It is usual in small to medium businesses to be very dependent on the founders. This means looking at whether the business could continue to operate if one or more owner left.
Is the company is performing in risk management and strategy. If you have no shareholders or buy/sell agreement this can cause quite significant issues if one partner leaves the business, gets sick or is hit by the proverbial bus.
Like many small companies if your business does not have a business plan or a succession plan then your business value will suffer. Having the business benchmarked give you insight into what’s possible.
Do you have a strong direction to determine the future value of the business? Do you have a clear remuneration strategy or an employee share plan? Both these reduce the risk of staff turnover even if you have some good HR practices. Benchmarking shows the risks in the business and helps us to prioritise action — for example we would certainly recommend having a shareholders’ agreement and buy/sell agreement prepared immediately.