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Published by zenih, 2018-11-14 19:21:55

Always Ready - Gerard Dunne Oct 2018

Always Ready - Gerard Dunne Oct 2018

LIC REAA 2008

TABLE OF CONTENTS

WHY SHOULD I READ THIS DOCUMENT?.......................................................................2
THE JOYS OF BUSINESS OWNERSHIP............................................................................3
FIGHTING THE BATTLE....................................................................................................4
BUSINESS ‘REV’ LIMITERS...............................................................................................5
THE POWER OF REFLECTION.........................................................................................6
ALWAYS READY.................................................................................................................7
CREATING VALUE............................................................................................................8
ACTION.............................................................................................................................9
YOUR ‘WHY’....................................................................................................................11
PROPOSTION & POSITION.............................................................................................11
BUSINESS BASICS.........................................................................................................12
PEOPLE..........................................................................................................................13
NUTS AND BOLTS...........................................................................................................14
FINANCIAL PERFORMANCE..........................................................................................17
LOOKING AHEAD...........................................................................................................19
WHAT IS MY BUSINESS WORTH?..................................................................................21

WHY SHOULD
I READ THIS
DOCUMENT?

As a business owner, you have businesses of all types and sizes and
chosen your own path and the aims to get you thinking about those
pursuit of opportunity and options. things that might make your business
ABC has prepared this resource to more lucrative, more fulfilling, and
help you maximise those options. more valuable when it comes time to
It reflects more than 25 years of move on.
engagement with the owners of

THE JOYS OF BUSINESS OWNERSHIP.

We own a business for obvious reasons. Ultimately, we want to gain the
We need to earn a living, we want to satisfaction of having built and or
optimise our financial circumstances to developed something, earn decent
maximise our choices in life, we want reward for our efforts and be able to
autonomy and welcome the challenge of hand the business on, such that it can
self-employment and control of our own continue to prosper and grow. But owning
destiny, we want to do ‘real work, we’d a business is generally no easy ride and,
like to involve the family, and we want to at the end of the day, its destiny is in your
create our own culture and have some hands.
fun along the way.

LIC REAA 2008 Page 3

FIGHTING THE BATTLE.

Since we started in 1986 ABC has Yes, it’s very easy to get up every morning
sold a lot of businesses, big and and go off to work to fight the battles of
small. Consequently, we have built the day. Three, five, seven years later you
deep relationships with a lot of past get up and do exactly the same thing.
and current business owners. In the After the end of each financial year, you
thousands of conversations we have check the scorecard provided by your
had, we have constantly heard business accountant and make a determination of
owners speak about the frustration of how things went. Sometimes it’s pretty
being preoccupied with the here and good and sometimes not so.
now, operating for today and losing sight
of where the business is at, where it’s Along the way you get a little tired, a little
heading, and how to get there. bored, and a little grumpy, … but you’ve
got to earn a living, right?

LIC REAA 2008 Page 4

BUSINESS ‘REV’ LIMITERS.

In our conversations with business owners it is not unusual for us to hear comments
such as:

• I don’t actually know what drives my • I’m about to lose a major customers, and
revenue, it just happens; that is 30% of my revenue;

• If I’m not here the business stops; • One of my key staff is leaving, and I have
no succession plan;
• The business has not gone that well over
the last few years; ... the list goes on;

• My accounts are a little messy; Such observations may suggest that a
business is performing below par, or at
• My margins have gone down, but I’m not least is not as tidy as it could be. These
really sure why; circumstances can reduce motivation,
tire the owner out, diminish value and
• My business is pretty profitable, but I’ve ultimately slow down the process of
taken a lot of value out of it personally, so exiting the business. While generally not
it d oesn’t show on the books; fatal they can limit choices, and they
can make it much harder to extract the
• My business systems are really not up to value and the satisfaction from business
it; ownership that you ultimately seek.

• There’s not long to go on my lease, I
hope we can roll it over or I may not

have a business;

• I’ve wasted a lot of money on bad
marketing choices;

LIC REAA 2008 Page 5

THE POWER OF REFLECTION.

ABC analyses the performance of This situation in turn creates options. For
hundreds of businesses every year. We example, the owner of a well performing
know that when an owner has taken time business can sensibly choose to:
out to fully understand the external and
internal operating landscape of their • Retain the business and keep banking the
business, identify key business drivers profits;
and identify objectives and plans, they • Expand the business;
make much better business decisions • Consider broadening the shareholding
as a result and are much more satisfied and introducing new equity for step
business owners. The business is growth;
more likely to develop and evolve in a • Exit the business and in so doing release
controlled manner, generate better and tangible assets value and bank some of
more sustainable returns, and will often the future cash flows, and indeed retire
require less of the owner’s time day to and or pursue new challenges.
day.
… and we all like to have choices.

LIC REAA 2008 Page 6

ALWAYS READY.

In response to the above, we invite • Understanding the key determinants of
you to consider the idea ‘Always success in your particular business and
Ready’. ‘Always Ready’ simply refers to how you measure up on each;
maximising your business so that you
have maximum options, and always • Establishing firm improvement and
being ready for whatever life brings. It development objectives;
responds to questions such as:
• Having a plan for achieving those
• What happens if my personal objectives;
circumstances change and I can’t work
in the business? • Always making sure your business
• Am I prepared to take up an unforeseen housekeeping basics are in order;
opportunity?
• Can I deal with economic adversity? • Considering your personal circumstances
• Can I escape from my business if relative to the business and thinking
necessary?
about when might be the right time to exit
Moving towards a position of readiness will the business.
necessarily involve:
Spend some time thinking and acting
on this, seek professional support and
advice as necessary, and we guarantee
you’ll end up with a better business and
more options.

LIC REAA 2008 Page 7

CREATING VALUE.

Everything you do to understand Everything you do to make your business
and improve your business now, and relevant, sustainable and efficient, will
throughout your ownership, is ultimately create buyer pulling power and value
exactly what you need to be doing to when you sell. Every $50,000 you can
get your business in the best possible put onto the bottom line of your accounts
shape to deal with any threat, or could gain you a further say $100,000
opportunity, or desire for a change of life to $250,000 on a Sale & Purchase
circumstances. Well executed, it will also Agreement.
get your business in a constant state of
readiness for sale.

LIC REAA 2008 Page 8

ACTION.

If you think there is room for you to accountant or business advisor. The key
be in a better state of readiness, read is to ask and answer them, and then
on. The following pages contain the decide which ones, if clarified and or
questions you could ask yourself about acted upon, might benefit your business.
your business. Some questions apply Not surprisingly, the questions are
to some businesses more than others, a comprehensive summary of the
some answers will come very intuitively, questions that our buyers ask every
and others will require more thought. day about the businesses we are
Some may be best discussed with your selling.

LIC REAA 2008 Page 9

ASK

YOURSELF

THESE

QUESTIONS?

YOUR ‘WHY’.

REFLECT ON YOUR SITUATION AND ASPIRATIONS

What is your reason for owning this particular business?
Are you still passionate about the business?
What would you like the business to look like ideally? (size, market position, geographic
spread, financial performance etc).
How long do you want to stay involved with this business and why?

PROPOSTION & POSITION.

THE BUSINESS PLATFORM

What market(s) are you in?
Who are your target customers?
Are the products and or services you supply going to be needed in the future; is demand
growing or reducing; what trends are evident or possible?
What is your offer?
Who are your competitors?
How are you positioned relative to your competitors?
What do you want customers to think when they think about your business?
What is truly distinctive about what your business offers customers?

LIC REAA 2008 Page 11

BUSINESS BASICS.

CUSTOMERS & SALES

Who are your current customers; what do they buy from your business; why do they buy those
things?
What do your customers actually want and need in relation to the products and services you
supply?
How do you categorise your customers?
Do you know which types or groups of customers buy what?
Do you have formal agreements with any of your customers?
Do you offer special terms to particular customers?
Do you have an over-exposure to a particular customer or source of revenue?
Are there any seasonal impacts on your business?
What do customers tell you about your business and how can you use that information?
How do you acquire new customers?
Do you have plans to acquire new customers that you have not supplied previously?

PRODUCTS & SERVICES

Are your products and services well matched to the requirements of target customers?
Are your specific products and services going to remain relevant for the foreseeable future?
Do you hold formal specifications, descriptions, quality certificates, formulations, recipes etc
for your products and services?
Do you distinguish between high margin and lower margin products and services?
Are all of your staff clear about the nature of the products and services you supply and the
customer expectation associated with each?

LIC REAA 2008 Page 12

PEOPLE.

STRUCTURE & EMPLOYEES

Do you have a clear picture of your organisational structure?
Are your reporting lines clear?
Are your people clear about their role and do they have role descriptions?
Are your Employment Agreements up to date?
Are your employees remunerated at fair market rates?
Are your staff appropriately skilled and capable, with good workplace behaviours?
How exposed is your business to key employees?
How hard is it to hire staff in key areas?

YOU AS THE OWNER

What does your role description look like?
How many hours per week do you work in the business?
How dependent is the business on your presence (operationally speaking); do you have any
special skills or experience on which the business depends; are there relationships you hold
personally upon which the business depends?
What role would a future owner need to carry out to keep the business running well?

LIC REAA 2008 Page 13

NUTS AND BOLTS.

INVENTORY

Is stock management a significant aspect of your business?
Do you have an inventory management system?
Is your inventory management system integrated with your accounting system?
Whatever system you use, are you clear about what each stock items costs and what mar-
gin you have applied to it?
Are you clear about the overall nature of your stock; age of stock and stock turn by product
or category; any obsolete stock?

TANGIBLE ASSETS - PLANT & EQUIPMENT, BUILDINGS

Do you have a complete list of all tangible assets / chattels?
Do you have a record of the age and condition and remaining economic life of tangible
assets?
How does this compare with the assets listed in your depreciation schedule?
If you have significant value in plant and equipment, are you familiar with its current ‘market’
value?
Is the equipment safe and fit for purpose, with plenty of working life remaining?
Is there a requirement for significant investment in plant and equipment in the foreseeable
future?
What expenditure is required to keep plant & equipment in effective working condition?
Are you clear about what plant and equipment is unencumbered, and what equipment is
financed or leased?
Are there any assets which are surplus to requirements?
If there is a building associated with the sale, do you have a reasonably recent market
valuation?

LIC REAA 2008 Page 14

NUTS AND BOLTS (CONT).

INTANGIBLE ASSETS

Do you have any registered trademarks, patents etc?
Are the registrations current?
What other intellectual property resides in the business and can that be protected?
Have you got known legal control of domain names and suchlike that are important for the
business?
What other business specific resources do you have that are of value in relation to your
business as a going concern; are they held in a clear and clean form and able to be passed
to another person; do you maintain and control these resources (e.g. policies, procedures,
manuals, guides, technical references, supplier details, design templates and so forth.

SUPPLIERS

Do you have formal agreements in place with key suppliers to provide assurance as to prod-
uct specifications, supply continuity and terms of supply?
How reliant is the business on a key supplier or suppliers?
What risk exists for the business if a suppler was lost or key terms of supply changed?
Do you have a central record of suppliers and key terms of supply?

BUSINESS PROCESS & SYSTEMS

Are your business processes clear and in an accessible form; can someone access a sys-
tem or pick-up the files / manuals etc and follow what is required to undertake an activity?
Do you have a central computer system where records are held for multi-user access?
Do you have published manuals / processes for one or more of accounting, product order
management, inventory management, customer relationship management, human resource
management, health & safety, technology and telecommunications?
Do you have well developed models for costing, pricing, margin evaluation?
Do you operate a job costing or back costing system to review project profitability?

LIC REAA 2008 Page 15

NUTS AND BOLTS (CONT).

PREMISES

How critical are the current premises to the ongoing performance of the business?
Do you own or lease the business premises?
Whether owned or rented, has the building undergone a seismic assessment by a registered
engineer and, if so, what was the % NBS (national building standard) rating?
If the premise is owned, does the business pay market rental rates?
If the premise is leased, what are the key terms of the lease; is there sufficient life in the
lease to ensure the business can operate from the site; if the lease term is limited, what is
the contingency plan; is the market rental fair, and is the rent review mechanism fair for you
and likely to be viewed as such by a future owner of the business?
Are there other aspects of the lease which may adversely affect the business in the future –
for example, a demolition clause, or the requirement for the landlord to complete extensive
seismic strengthening works during the term of the lease?
If there are any restrictions on the types of business activities that can be carried out in the
building?
Is there any possibility of future rezoning in relation to the business location or nearby
locations?
Are there any major road developments or public works planned for the near future which
may affect the business?
Do you have an up to date copy of the lease, fully executed, and complete with any Deeds
of Renewal etc?

MARKETING

Do you have a marketing or communications framework or plan that you can explain?
Do you have a Business Development plan?
Do you have an effective website which accurately communicates your business proposition
at a high level and at more detailed levels?
Are you familiar with the role that social media can play in promoting your business?
Do you have an active social media strategy?
Are your advertising and communication choices / investments relevant, targeted and
measurable?

LIC REAA 2008 Page 16

FINANCIAL PERFORMANCE.

FINANCIAL ACCOUNTS

Do you have formal financial statements prepared by a Chartered Accountant?

How well do you understand your historic financial performance – have you reviewed the
financials with your accountant so that you are clear about what they are showing, what is
included and what is not included?
Do you understand your major sources of revenue, what your gross operating margin is,
what costs are showing in your expense lines?
Can you explain any significant increases or decreases, any significant trends?
Do you operate accounting software that provides you with an up to date view of your
financial performance?
Have you prepared any profit & loss, or cash flow forecasts for the current and future years?
Are your accounts nice and clean, reflecting the activity and performance of a ‘single’
business?
Does your profit & loss statement make it clear what value you take out of the business as a
working owner?
If you have stock, are you sure that your closing stock position has been accurately deter-
mined at the close of a reporting period so that you can be sure that your stated profit is
correct?
If your business has significant value in ‘work in progress’ at any given time, is that account-
ed for accurately in your accounts; do you prepare accruals to ensure accurate statement of
profit at the close off of any financial reporting period?
If your business has significant value in ‘prepayments’ at any given time, is that accounted
for accurately in your accounts?

SALES REVENUE

Do you know what activity / customer type / product / geographic area generates what
revenue?
Do you understand what changes are occurring in terms of your sources of revenue?
What do you expect will happen to your revenue looking ahead and why?

LIC REAA 2008 Page 17

FINANCIAL PERFORMANCE (CONT).

MARGIN

Do you know how profitable each of your trading activities is?
Do you have a clear view of the variable costs associated with the sale of each product cate-
gory, service type, region, sales channel?
Are your margins improving or declining and why?
Do you have a system for determining the sale price for a particular product or service?

OPERATING COSTS

Do you have your expenses broken down so it is easy to understand your total cost struc-
ture?
Are all expenses showing in the accounts?
Have you thought about what costs could be described as ‘good’ costs (meaning they di-
rectly relate to a genuine business need or a development initiative), and which costs might
be described as ‘bad’ costs (meaning they reflect waste or loss, a cost over and above
what should be the case)?
Do you think about how your variable cost structure is affected by changes in sales activity
and by your other business decisions?
Do you think about how your fixed cost structure is affected by your business decisions?
Are there any personal expenses buried in the numbers?
How could profitability be changed by reducing expenses?

DEBTORS (ACCOUNTS RECEIVABLE)

What percentage of debtors are outstanding for more than 60 or 90 days and why?
What systems are used to monitor debtors and follow up for payment?
Do you understand the impacts of debt on cash flow?
Can you demonstrate that you only deal with proven payers, and have effective credit ap-
proval systems in place to approve new customers for credit?

LIC REAA 2008 Page 18

LOOKING AHEAD.

PLANNING

Do you have a strategic plan or at least a statement of your business strategy?
Do you have a business plan explaining how you intend to make your strategy a reality?
Do you have a forecast or a budget for one or more years looking ahead?
Is your forecast or budget backed up by statements of fact or logical assumptions that other
people can make sense of?

LIC REAA 2008 Page 19

WHAT
IS MY
BUSINESS
WORTH?

If you are still reading this part of the your life - will you have to work again, can
document, you are going well! you buy a holiday home, will new invest in
a new venture or simply retire in comfort?
We are hopeful that, having taken on In short, it creates new options. Given
board our questions, you have a sense that, for many business owners, selling
of what we meant when we spoke of the business is also just one strategic
maximising your business so that you ‘option’, it is very important that you are
have maximum options, and how being well informed on the question of value.
always ready can directly translate to
maximum value. There are a number of ways to calculate
the value of a business – it will almost
When you start to think about exiting certainly take account of assessment
your business, the first thing you of historic and of future maintainable
probably want to know is, what it might earnings, also multiples of earnings,
be worth. This is a big ticket item. In market evidence of sale of similar
many cases the business sale and the businesses, consideration of the
value you realise may have a very direct discrete value of tangible and intangible
impact on how you will spend the rest of

LIC REAA 2008 Page 21

assets; with additional options such differently depending on their own
as the modelling of discounted future strategic circumstances, experience,
cash flows, consideration of return on and individual rationale for acquiring the
investment, investment payback periods business in question.
and so forth. These considerations
derive a calculated value. However, Hence determining an appropriate value
you should be aware of the difference at which to market your business is often
between calculated value and market as must art as science. For example, if
value. Irrespective of how much analysis you built a four-bedroom home on a flat
and experience is applied to determining section, we could argue that the value
a calculated value, its market value is is derived from the cost of the section
ultimately determined by what a person plus materials plus labour. However, if
or organisation is willing to pay at a that home is in a desirable school zone,
particular point in time. To complicate has ocean views, has exceptional sun, is
matters further, different types of beautifully landscaped, and there is little
buyer value particular businesses very market competition at a point in time,
then these less tangible aspects come

LIC REAA 2008 Page 22

into play and potentially add significantly • The potential scalability of the
to its value. Businesses, of course, are business;
much more complicated than houses,
and hence many more variables need • The type of person or organisation
to be considered in ascertaining value likely to be interested in the business;
and ultimately extracting that value in the
open market. Effective understanding • The number of individuals and
and application of the science and art of organisations which would potentially
pricing can, therefore, represent a great be able to successfully run the
deal of money, and the saving of a great business;
deal of time.
• The investment rationale for the range
To flesh this out a little, in a business of possible buyers;
appraisal we would consider matters
such as: • Strategic attractiveness for possible
trade or industry buyers;
• The future of the industry in which the
business operates; • The extent to which the business
can run on its own without the owner
being there;

LIC REAA 2008 Page 23

• The underlying or normalised ABC has been selling business
earnings performance; since 1986. We specialise
exclusively in the sale of
• The reliability of future earnings; businesses. We are experts at
managing this complexity and
• The demonstrated resilience of the providing you, the business owner,
business; with more options. Whenever you
think it’s the right time, wherever
• The performance of the business you may be on your business
relative to similar businesses; ownership adventure, one of our
team of business sales specialists
• The general desirability of the will be happy to sit down with you
particular business or industry, also and speak confidentially about
its location; being ready and maximising value.

• The degree to which the business is
distinctive relative to its competitors;

• The extent to which the business is
clean and tidy operationally;

… and so forth.

LIC REAA 2008 Page 24

WE’LL
TAKE YOU

THERE.

For advice on selling your business, or
preparing it for sale, talk to Gerard today.

Gerard Dunne
027 220 8277

e [email protected]

LIC REAA 2008


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