Do you business plan in your head on holidays?
What do you think about when on holidays?
Do you find yourself thinking about your business and what you need to do when you return? Do you think about the plans you have to grow the business or how you can improve the cash flow?
Or do you think about how to exit the business or develop a succession plan?
Many business owners have told me about the ideas they had whilst on holiday, and in some cases they have decided sell the business without even knowing the value of the business.
Ironically, most business owners are missing the one key ingredient needed to make informed decisions:
- Reliable information about the performance of the business and more importantly what can influence the future performance.
When business owners are making exit strategy decisions they need four key categories of information:
- Financial performance.
- Business attractiveness.
- Risk profile.
- Strategic opportunities.
Trends in the key financial performance parameters for the past 3-4 years should include items such as:
- Profit margins, both overall profit and profit by market segment – What is generating the cash?
- Breakdown of sources of cash flow from operating, financing and investment activities – where is the cash coming from?
- Return on investment – is the capital working hard enough?
- Working capital efficiency – how much cash are you burning and what do you need to grow?
The attractiveness of the business and how it might look to other buyers should answer questions such as:
- What are the key business drivers that contribute to attractiveness of the business?
- What will strategic buyers be looking for?
- What are the projections for the business under the existing strategy?
- What alternative strategies are available and the likely financial projections?
- What is the impact of changes in the key business drivers on the value of the business?
The business and industry risk profile should include:
- What is the size and nature of the market?
- Is the market growing now and in the future?
- What industry trends and issues do you need to prepare for?
- What is the risk profile of the industry?
- Does the business have appropriate risk management plans in place?
Strategic Opportunities should be broken into:
- Opportunities to increase your market share.
- What is your key competitive advantage?
- How would your competitors benefit from owning your business?
- What other industries or businesses could benefit from your processes or customers?
- What are your competitors doing better?
- What capital investment is required to achieve improvements?
If you have this information before you go on holiday, it is more likely the ideas you get will be more creative and the decisions you make will be more decisive. This is more likely to result in an increase in your wealth rather than a hasty exit at any price.
A detailed valuation provides this information in a structured and reasoned manner, with supporting evidence.
Our valuations can be delivered in less than two weeks and includes a briefing on its implications on the exit strategy process. Our processes also minimise the client time required and can be delivered remotely. Often it involves less than 2 hours of conversations over the phone.