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Musings on business value, sale preparation, sale negotiations, sale structure.

Posts Tagged ‘Valuation’

The coming tsunami

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The thing with Tsunami warnings is that they appear over and over again following reports of earth quakes, but they seldom manifest in anything discernible to those on the shore. So with time, people, cities, and governments start to ignore the warnings. Frogs in warming water.

When the big event occurs. The unprepared citizens witness first hand entire towns being washed off the face of the coast, nuclear power stations being shut down, or not. And vending machines being left unlooted. This was once a real thing in a first world country.

My South African clients are giving giving vent to any number of local scenarios, ranging between two extremes:

  • Zuma will be out by Christmas, and in jail by the new year (Unlikely)
  • All is lost, the country has been entirely captured. Democracy is a myth in South Africa. Stock up on canned goods and buy Bitcoin. (Also unlikely, although I do find myself attracted by the notion of a finite issue, decentralised, non fiat, digital asset)

We all have our own expectations of the future, and our actions or inactions will be influenced by the current turmoil in the political, social, and economic malaise; but that malaise is the single biggest reason for so many of our clients retaining us in the last year.

As Stephen Grootes says:
“The next five months in our politics could determine the coming decade”.

As luck would have it for those approaching retirement in the near future; there is a growing number of investors looking to expand their own projects into business owners’ horizontals and, or, verticals. They are getting their own acts together for a strong upturn which is quite possible, once the madness is over.

  1. Horizontals – competitors, industry related, and complementary businesses.
    A franchisee in a successful chain of restaurants buys a store of the same franchise which becomes available on the other side of town, and also makes an offer for the new store being contemplated in the new mall.
    A hairdresser buys a nail salon in the same mall so that it can cross sell to both businesses’ customers.
  2. Verticals – in the same supply chain to an end user.
    A large group owning a logistics company, an abattoir, and a coffee bean importer, purchases a national chain of restaurants to enable spare capacity in the abattoir and the logistics businesses to be utilised, while securing a market for its beans.
    The supplier of beauty products buys both the hairdresser and the nail salon so that it can benefit from gross margins on a longer chain.

The potential investment situation is evidenced by the large amount of money sitting unused in large businesses, corporates, and in pension funds. It is the same money which Bell Pottinger might suggest is being held ransom by white monopoly capital (WMC) – an apparent thing – for defined performance by the ruling elite.

Psst… it is money being held back looking for decent investment. Stop being a box!

As a business owner entering the closing years of an exit plan, you have an unprecedented opportunity to tap into that enormous resource; but only if you play your cards right. PrepareYourBusinessForSale™. Get prepaired. The group or company which buys your business is not going to pay over the top. They will pay the value you are able to confidently demonstrate. It’s up to you to demonstrate that value. If you are not adequately prepared, you will leave money on the table.

Think outside the box for a while. Really; give it some serious thought:

  • Who would be interested in buying your business in the coming years?
  • What would they want to buy?
  • Does your business have the capacity to excite, simplify, or add security to a new owner?
  • How do you get things in the right “place” for them?
  • How do you maximise your own value, while enticing the acquiring person / business / group to see the greater future picture?

Those are the current and ongoing challenges for all business owners. Don’t neglect them.

Four budget speech hurdles

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Not a very official analysis of what will fall out of the 2016/17 budget speech. There is no investigative authority involved. I have not phoned any treasury officials, and I am not privy to an embargoed copy of the speech. #JustSaying. In many respects, this is an alternative to what the popular commentators having been writing for the last week. More importantly, it gives some idea of how the value of your business may be affected.

Small business owners tend to not care too much about the annual budget speech. Like John Lennon who famously said: “I never vote because the government always gets in”, they know that no matter what they think, the budget has been decided and they will be affected – good, bad, or ugly.

This year’s budget is different because of the ramifications of a cock-up following #4DaysInDecember. Investors are watching us, in an environment where the rest of the world is growing, albeit relatively slowly. South Africa has pretty much ground to a halt.

For small business people who are able to nimbly make allowances for changing economic, legislative and tax requirements, the speech means less about talking heads in the immediate aftermath, and more about where loopholes can be exploited, own policies tweaked, and changes taken advantage of.

I think that it is unlikely that the minister will provide us with any short term good news, and nor is it likely that he will mess around with little fiddly changes all over the place. He needs to be seen to be making sweeping changes to effective rates in easily result providing areas. Look out for these pointers

1. VAT

If the VAT rate goes up, you should know that we are really in trouble. Many commentators suggest that this is too hot a political potato to deal with now. It will affect the poor and the rich, and the EFF will scream blue murder. The Davis Tax Commission has reportedly suggested that this is the most efficient way to increase revenue. The poor can be accommodated with a marginal increase in social grants.

Might I suggest that the manner in which the Cabinet backed down on the Tax Amendment Act was the left hand of a deal with Cosatu, allowing the right hand to lift the VAT rate with minimal noise from the trade union congress.

Effect on your business value

Probably minimal. VAT collections are trust moneys, which you need to account for separately to your income statement and balance sheet. If your product has a close link to the retail user, you may come under some short term pressure, but life will go on. Expect some arbitrage around the date on which the VAT rate changes, from the unscrupulous.

2. Amnesties

We are a country of amnesties, and we all understand them very well, from giving amnesty to murderers under the old regime (also committed by members of the new regime), to the various tax amnesties, and the fact that so many small businesses give a monthly amnesty to their debtors by way of a settlement discount to encourage them to pay their bills.

South Africa needs to collect money in a hurry, and an amnesty for all sorts of tax misdemeanours is quite likely, if it means that outstanding taxes are collected quickly and easily.

Effect on your business value

If you have some of these skeletons hiding away, this may give you a opportunity to come clean before risking the process of a due diligence in a sale of your business in the next few years. The improved sleep patterns may also give you further energy to get up and go, for at least a while.

On the negative side, your customers may find themselves cash constrained as they come to terms with having to actually pay those taxes they have been dodging. That may mean fewer, or smaller sales for your business while the system adjusts. Those sales changes will translate into lower profits for a while.

3. Corporate tax

  • In 1980 corporate tax was 42%.
  • In 1982 it rose to 46.2%
  • In 1984 it rose to 50%
  • With the approach of some democracy, Treasury was able to lower it to 48% in 1991, then 40% in 1993. We thought it was Christmas!
  • It got confusing in 1994 with a once off RDP tax of 5%. Nobody seems entirely sure of where that went, but anyway…
  • By 1995 it had dropped to 35%.
  • 1999 it dropped further to 30%
  • 2005 saw 29%
  • And 2009 saw us drop to the current 28%.

Interest rates are rising, and corporate tax is likely to do the same.

According to the Davis Tax Commission, a 3% rise in VAT to 17% will have the same effect as a rise in corporate tax to 33.2%.

Effect on your business value

This is a tricky one, dependent on how you negotiate the sale of your business. You will need to consider other issues, such as whether you are intent on a sale of assets, or the sale of the equity in your business. Currently, the equity deal makes more sense, but that might change after Tuesday.

Either way, all profitable businesses will be equally affected, and the rising tide thing may save us from wild valuation changes. Expect though, that buyers will lean on you either way. Take their nonsense with a pinch of salt. Sit back. Take some advice. Don’t panic.

4. Once off tax on company reserves

Now there is a bombshell waiting to explode.

For a long time the government has been castigating companies about the piles of cash they are sitting on without investing it. There is a mountain of cash sitting doing nothing in many businesses. Government has appealed for this money to be invested. Business has shrugged and suggested that Government should perhaps make things a bit more business friendly (particularly around labour laws).

A once off tax on this enormous reserve would go very far in driving off the ratings agencies.

Effect on your business value

This is a game changer. It is also fool proof. Say 1% tax on all company reserves, which have already been taxed on corporate tax, but not on dividends tax. Perhaps business should be required to use it for investment or submit to a once off taxation. SARS already knows how much it can depend on because we have been submitting our financial statements to them for years.

There will be a lot of money looking for investment homes in small businesses. That will drive business value up sharply and quickly. It will also stimulate the economy like nothing else. This will have a knock on opportunity effect for other taxes to be collected. It will accelerate the capital gains tax collection from business sellers.

It might just be a golden opportunity for well prepared businesses to get out at above average values.



You may notice that I have ignored all that talk about Government slowing down on its spending. That’s because we have heard it all before, and we all know it’s not likely to happen. Before Easter we will have some more scandal around one or other minister, MP or director general wasting money on cars, hotels, trips, houses, alcohol or pantypreneurs. Most of us know it will happen. Frankly it is small cheese in comparison, so let’s just concentrate on getting more money in.


*PS I am not privy to any ministerial discussions, and the blog written here is pure conjecture in as far as what may be decreed. There is a strong possibility that I have it all wrong. Wouldn’t it be fun if I have it all correct?

Robot wars and the future of business

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It is being referred to as the third revolution in warfare – the development of artificial intelligence – after gunpowder and nuclear weapons. Think back to the Terminator movies – You know the way that science fiction has a habit of becoming science fact? That concept is now being warned about, by people vastly more intelligent than you and me. (Apologies to HG Wells)

Scarily, it cannot be far off now that a terrorist organisation or freedom fighter (depending on your leaning) flies a bomb laden drone into an unsuspecting target, controlling the weapon with a mobile smartphone in a luxury apartment on the other side of the world, while being cheered on by bikini clad infidels. Such is the pace of change in the age in which we fight for our crust of bread, cup of water and watt of power.

What seems like just the other day, but what in fact was almost two years back, I suggested that the coming and existing technology storm would make a big difference to business values.

It is laid out so very well in The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee. Read it.

This also presents a great challenge to small business. That’s you and me. The big guys have the funds to enable them to retrench thousands of workers, and resort to smart machines for their labour. We apparently don’t.

For a long time the imperatives of BEE have seen the smaller guys training up competent and outwardly loyal workers to be skilled in their jobs, only to have those workers poached by industry, along with the hard earned BEE points.

As the camera of politics pans across to the other side of the stage, we see big business talking to organised labour, and apparently coming up with workable solutions, for now, for surviving the coming economic storm in an environment of government lead ineptitude.

Left unattended in the wings is disorganised labour and small business – the ugly, shy and nerdy, with nobody to talk to at this dance for existence and survival.

Which brings me to an interesting question… What if the great unemployed were more interested in the dignity of having some sort of employment? What if the weight of the unemployed reached such a mass as to make things change, that this vast body realised that the unions do nothing for them, and do not even have their interests at heart? Why would they? The unemployed don’t finance the lifestyle of the average trade union leader! What if the great unemployed mass was to suddenly understand that the unions HAVE to ensure that they remain unemployed, so as to not dilute the bargaining power of the employed?

And (oh the horror of it all) what if the mass of unemployed were to suddenly understand that the labour laws are there to keep them unemployed and unemployable, in the interests of the luxury goods market, otherwise known as the communist ideals inspired; organised labour?

So, what if disorganised labour and unruly small business business was to have its own indaba…

{ed – wake up. You’re having that dream again}

Anyway, as I was saying…

If you want your business to grow in value, you can find ways of embracing ever more affordable smart technology. If you don’t, your competitor will. And before you reach for that tired old argument about 3d printing not having your material available for what you do in your industry, take a look at this runaway locomotive; 3d printing in glass:


Look, I’m no brain surgeon, rocket scientist or even concrete mixer, but I can see that if we have the ability, only a few years into this technology, to print with glass, then there is a lot more to come, and whatever your medium is, whatever your application, whatever your product – there is an opportunity here for your business.

Unless you want to hang around and wait for your competitor to make it a threat.

You do know that the competitor is still at high school, don’t you? You do know that he is on the internet via his smart phone, plotting your demise, right now?

Robot wars are coming.

Allergy to BEE stings?

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Keith Levenstein is about to tell us all about where the new BBBEE situation stands in his brief seminars, following the imposition of the new codes next week. At the time of writing this, Rob Davies was intent on imposing the new codes from 1 May. I have a slightly jaundiced view of BEE as a whole, notwithstanding the fact that something (meaningful) needs to be done to sort out the inequities of the past.

I guess I am just a bit tired of poor and indifferent service from people who have jobs because of their skin colour, and not because of their abilities. Indifference arises from the employees knowing that their numbers add to the employer’s score card first, and second; the employees knowledge that employers find it is a leap too far to dismiss the useless, care of the CCMA.

From front line call centre staff to sportsmen in the best teams. They know it and we know it. “Quota” is a four letter word. No really, it is.

There are unintended consequences to this social engineering. None of this is new, of course. When I left school, I was told I would never get a job unless I first got a degree because jobs were all reserved for Afikaners. Life was a lot worse for our black fellow citizens at the time.

Soon after leaving university, I decided that I was unemployable, anyway. Thank goodness for that self realisation as I struggled to create my own space without the luxury of a monthly pay cheque.

That is the thing about the future of South Africa. When the patronising dust has settled, the unintended consequences will simply perpetuate the inequalities of the past and present.

However, it is worth noting that in South Africa in 2015 there are many jobs which are considered very valuable, but falling into a few broad spectra:

  • Most public sector jobs seem to be regarded as “reward – without – work” jobs. But apart from those:
    • Consultants are becoming the life blood of the nation as cadre deployment relies on them to get the job done.
  • BEE has spawned a whole extra layer between those who are able, and those who can connect. Well if nothing else, it is a way of distributing wealth to the connected. We can only hope that some of it filters down to their respective communities. Personally, I have run out of puff, holding that breath.
  • A whole raft of very capable white people who are unable to find employment the various sectors which now place small print at the end of their job adverts: “Preference will be given to PDIs”. Those people become struggling business owners, sometimes employing those with less initiative, other than “always being able to find a job because I am black”.

That last group is going to perpetuate a problem. White people are unable to find jobs commensurate with their abilities. So they take their skills to the small business sector, where they scrape and starve for years, building up one man operations, perhaps with a few staff members in support. The thing with being made to struggle, is that if the struggle does not kill, it strengthens.

When the dust has finally settled, and the strong are left standing, the employers of the future will be the strong who had to fight for their crusts. The workers will be those who rely only on their melanin to get their daily bread. That is a great sadness for a country with so much talent being wasted while it receives handouts.

These “businesses” or “jobs” if you prefer are, in a normal society, difficult to sell. However, South Africa has been an abnormal society for as long as it has had any sort of society in the last 300 years. The current hogs at the trough have no interest in changing that. Much like the pigs before them, and all the previous artiodactylous rulers before them.

The thing with abnormal societies is that abnormal practices flourish. So when a self employed businessman arrives at the end of his career in this abnormal society, there is a ready stream of one man operators willing and desperate to buy themselves into that job. It is not the way it should be. But is the way it is. And it is a meaningful way for small business owners to exit with some accumulated value.

The thing is, while banks may not be interested in financing these acquisitions, the youngsters in question often have access to family funds by way of cash or security, to help put them into jobs which will one day be the employers of the weak sons and daughters of today’s ruling elite.

It’s very depressing for the country as a whole, but it offers a way out for those who need to move on to a new phase in their respective careers.





Get your taxes paid here

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The growing socio economic imperatives of South Africa in an environment of close to zero growth in the economy, means that without any windfalls such as even lower oil prices (currently at about $32 per barrel, and with less and less space to fall), or a huge rebound in the value of the Rand (unlikely while the ANC persists with Zuma), or some miracle; taxes will have to go up.

Big businesses take the view that taxes must be paid by their customers. It’s that simple. They need to give an expected return to their shareholders. Initially they will embark on much marketing noise about “absorbing the cost for the sake of the man in the street”, but eventually consumer prices will rise to give effect to the profits line. Joseph Stiglitz has a lot to say about this attitude, and it isn’t nice; but that’s another story.

Big businesses can indulge in this practice because their competitors all do the same thing, and because consumers expect inflation to happen, and therefore expect to see higher prices, given all the hot air in the media. There is simply no consumer push back. And how would they do that anyway?

Small businesses with a bit of oomph behind them, are also able to pass their tax costs onto their own customers. Business owners who have been around the block a few times, know that if they try to absorb the extra tax expense for their customers, they will eventually lose those customers when the business folds, anyway. They will cease to be tax payers themselves.

Businesses which have a competitive edge will be able to lead the way, and will have the edge in the profit race. Simply put, they can actually start to benefit from the tax increase ahead of their weaker competitors who are afraid of losing customers.

No prizes for guessing which sort of business is more valuable.

What is your business exposure to tax increases like?

Corporate SMEs

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One of the biggest hindrances in selling a business is the ill preparation of documents, often coupled with exorbitant asking prices. This is most often the case at the lower end of the market, or in instances where there simply is no data available because the business has not been around long enough to generate any.

This latter instance is most often the case where someone has started a venture and seen within months that it is not going to work. Instead of liquidating, he tries to pass the bad deal on to someone else to recover some of his investment. He also hopes I suppose, to find a sucker to take over the three year lease which he has signed, and given up a personal surety-ship for! But that’s another story.

I was recently approached to give a valuation opinion on a business being targeted by an old client of mine. I suppose it is unfair to say that it was being actively targeted as such, because the target’s owner had really solicited the suggested sale with my client. After the usual non disclosure niceties were complied with from our side, we were sent a spreadsheet showing last year’s performance, and what I thought looked like an optimistic projection for the next five years.

There is nothing different here from lots of attempted sales we see in the example I mentioned in the first paragraph: Simple spreadsheet, optimistic reassurances for the future, and an asking price based on the future projections. The difference I suppose, apart from the asking price being in the tens of millions, was that the seller happens to be a listed company on the JSE!

At first there were no audited financials available. Reading through the email thread when the financials were eventually sent to me, it is clear that there was a concerted effort made by my client to get the financials out of the seller, which was complied with only on the eve of the deadline for the tender of offers from interested parties.

What did the financials show?

  • The business being sold is technically insolvent.
  • The business has only one customer –  the seller!
  • Key expenses have been left out of the spreadsheet.
  • The sales turnover has been slipping year after year.
  • And a whole lot of other nonsense.

In the SME market, all buyers would head for the hills on this one. In the corporate market we expect better behaviour. Do we get it? You decide.

Recouping values

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About ten years ago a bloke took me to tea. He wanted me to sell his business. He intended to cash in and get out. Get out of the country, that is. He had very definite plans, and had everything booked for six months hence. So this wasn’t going to be a long drawn out affair.

As we sat down, he took out a little scrap of paper – one of those sticky Postit things. On it, he had the most basic information from his balance sheet and income statement. It turned out that he did not want to alarm his book keeper, so he avoided making a copy of the audited financials with her around. Instead he just made some notes and left the document back in her tray, or something like that.

Anyway… Over tea he proceeded to tell me that he would be happy to just get his net asset value. As I remember it, that was about R3M. I looked at his key indicators, and agreed to prepare a mandate based on that price. In the meantime, would he please get me copies of the last few years’ audited financials, and his management accounts.

I went away and prepared the mandate. He waited for his book keeper to go home, then quickly made copies for me to take when he signed the mandate. He is a good friend of mine in another country now, and we laugh about the turn of events. We also do things a little differently today, but that night I went and sat with his financials. There was no way the business would get only its NAV, or if we aimed for that, it would be a very quick sale. It had issues about it, which made it far more valuable. And so I went for it. He was a bit worried at first because he did not want any delays, but after a week or so he saw what I was up to, and why.

At one time during the process he went overseas for a week, while I continued to work on the various buyers we had interested. There were many of them. when he came back, I had prepared term sheets for three offers to be negotiated. We spent the next few weeks negotiating with each one in turn, trying not to act like used car salesmen (sorry Jacques!). I think we made quite a good team putting the deal to bed. We finally sold the business for almost twice the NAV. There were foreign exchange issues at the time, and suddenly he had more money available than what he was allowed to take out of the country. What a nice problem to have.

How would my friend have planned his life, if he had an accurate view of what the business was worth, earlier?

It works the other way as well, unfortunately. People believe that their businesses are worth more than what they are. Then when the retirement bus pulls up, they are left floundering and unable to reconcile their lot to reality. It is very sad. A few tweaks a few years earlier, with an accurate valuation and critique, may have made all the difference.

Then there’s the guy who tells me that his accountant says the business “owes him R3M”. The accountant knows full well that his client will never get the money, but this is the easiest way of getting him out of his office without committing to a value. So the poor guy wastes months of energy trying to sell something which will never sell at that price. We see that quite often. We are referred to many accountants’ clients to give them accurate market related valuations. No nonsense stuff. Sometimes it is very difficult. But there is really no point in not knowing where you are, when you are trying to go somewhere in particular.

Yesterday I sat with a seller and a buyer. The buyer is also aiming to sell his business, but has started the process of looking for a replacement business, He likes what he sees. So the seller tells her story, and then comes to the bit which made me sink lower into my seat. “And then Mark did a valuation, and told me I would never get that for my business. I needed someone to be honest with me, because now I’m making real progress”.

“Oh,” says the buyer. “He’s just started doing a valuation on my business”. They laugh uneasily. I try to look professional, squirming only a little bit.

“Good luck to you”, she says with a twinkle in her eye.

He’ll be all right. He has a nice business, and realistic expectations.


Trusts, companies and CGT

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In recent years it has been all the rage to ring fence small business affairs to protect them from the ravages of creditors wanting what is owed to them. This is considered good business practice, and it embraces the spirit of “limited liability company” most effectively. Used carefully it may have even helped protect business owners who traded in insolvent circumstances – criminally.

A few things have changed in recent years:

  • The new Companies Act 71 of 2008
  • Capital Gains Tax (CGT) rates for companies

The first has effectively taken out the six month rule with regard to reversing transactions, and the criminality of trading in insolvent circumstances. Creditors have the power now to go after business owners in their personal capacities, piercing corporate veils if they can be shown to have traded recklessly. Very much motivated, creditors no longer need to rely on criminal prosecutions from an overburdened prosecuting authority. I suspect that some really gatvol creditors will prosecute civilly beyond the economically viable!

More to the point though, as I assume my readers do not trade in insolvent circumstances (ever!) is the change to CGT rates for companies. In 2012 the effective rate on CGT for companies was hiked by an amazing 33%.

The method of choice until recently (and I have preached it far and wide) is to sell the business out of the company, and distribute the funds which are paid, from there. But with the new tax rates, this means getting those funds out has increased by a whopping 40% and some change.

The reason for the asset deal instead of the equity deal (sale of shares) is one of future security for the seller. He remains protected by his limited liability vehicle until it is safe to liquidate it. That may take some years, or at least until any possible claims have prescribed. It is the safe, but now expensive, way of doing things. Much cheaper from a CGT perspective is to go the sale of shares route. But this takes time and planning.

Some more upside: Making the necessary changes to the way things are done will add to the value of your business.


Jobs, self employment and businesses

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One of the defining issues in the value of a business, is the ability of the owner (shareholder or shareholders) to be able to leave the business for an extended period of time, and come back to one which has gained in value.

Relax. I know that your business is very unlikely to be able to boast this ideal. Why? Because hardly any businesses can. At the other end of the spectrum is the sole operator, for whom the business effectively ceases to operate when he goes golfing. So two extremes, and I know that 99% of my readers fall somewhere in between.

But I’m sure that very few would argue with the assertion that the more freedom the owner has from the day to day operations of the business, the more value the business has to a potential buyer. Generally speaking. There are some exceptions.

At the end which is dictated by the presence of the owner, the “business” is little more than a job, according to Robert Kiyosaki who bands “businesses” into three categories:

  • Jobs
  • Self employment,
  • Businesses.

Not dissimilar to the parable of “Wink”, a book easily available on Kindle, and well worth the hour or so to read.

There are several very difficult value hurdles to overcome, and owner autonomy is certainly one of them. It requires an enormous leap of faith from the small business owner in terms of trust, training and affordability. This is not a simple matter of finding five times as many customers to each spend the same money as your current customer base!

While a major catalyst to change is reading something like this, the biggest kick in the pants comes about by the survival instinct in the midst of a crisis, where an owner finds himself unable to continue without bringing in the necessary skills, trusting his existing staff members and just finding the money from his own holiday budget.

Those crises might be one or several of a very broad range – health, retirement, increased turnover, pedantic customers, loss or gain of contracts, new technology, and many more which you can probably add to to yourself. While most business owners recognise this imperative, the grind of developing the next big project, satisfying the order, ordering more supplies or generally managing staff, credit, cash flow and so on, takes an obvious precedence.

Nestled in there is “the next big project”. It may be time to make this your next big project, rather than wait for an enterprise threatening crisis. It could add millions to your retirement package in years to come.

  • If you are solely responsible for your company’s sales, you have a problem
  • If your customers insist on talking to you only, you have a problem
  • If you are the only person responsible for product development, you have a problem
  • If you answer the calls at night for the burglar alarm, you have a problem
  • If budgets are drawn up with no input from any of your staff, you have a problem
  • If management accounts are for your eyes only, you have a problem
  • If you do not have succession plans in place for staff members who leave, die or get sick, you have a problem
  • If you cannot go away for a week leaving someone else in charge, you have a problem

You will almost certainly not be able to tackle these all this month, or even this year. But perhaps you could deal with one of them. Others will follow as a result. Your business will become more valuable, and you will retire richer… one day.

A year from now, you will wish you had started today.



Magic multipliers rival the mushrooms

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The benefit of being snowed in by client business valuations over Christmas and into January is that it gives one time to think about (mostly) only one discipline of one’s job – valuations. With so many different types of businesses at one time, a bit of research is necessary to put things in perspective.

And how enlightening! The number of business brokers out there relying solely on standard valuation multipliers is scary. But at the same time, the number of careless statements issued by all sorts of people on the interwebs is downright dangerous.

The most frightening of all is the guy who tells us that a dry cleaning business can be valued at 7,5 times its gross sales turnover. To put that in perspective, ABSA is currently trading at about 12 or 13 times its net earnings, after all its expenses and costs have been deducted from its own turnover. So I am sure that his 7,5X gross turnover for a dry cleaner is a slip of the tongue, and I explain as much in the video, below; but for heavens sake, take the trouble to make the correction! There are people out there who will grasp at that straw and make life defining decisions about their retirements from such mistakes. These are mistakes which are very difficult to recover from once the die is cast.

I produced the video with a bit of a chest infection, so it has raspiness to it, but I think it does a reasonable job of explaining why DIY, multiples – based valuations are so dangerous, and how anecdotal discussions with people with limited experience in valuing businesses can do so much damage.