All businesses, whether they are small to medium sized enterprises or large private companies, should plan for the future. In particular, if you are a business owner, you will need to give consideration and plan for what will happen when you are no longer at the helm.
You may well be enjoying running your company, but you may not want – or be able – to do it forever. Therefore, it makes sense to consider how the business will run without you, including succession planning. It’s also sensible to build the capital value of your business in order to make it a saleable entity, should that become the best course of action.
The capital value of your business can be influenced by a number of factors, and is not an exact science. How the business has managed its finances over the years, controlled costs and generated profits, together with the level of debt your business is carrying and its order book, will obviously be key. But there are a range of external factors that may also affect the value. For example, the level of demand for your particular service or product, the competition in your market and what’s happening in the economy. Other less tangible factors such as your relationship with your clients and client loyalty will also be taken into account.
Another critical factor in any valuation will be to do with you personally and the people within your organisation.
How dependent is the business on your own skills and personality? Many businesses are headed by charismatic founder leaders and it’s difficult to imagine them continuing without that person. Think of the Virgin Company without Richard Branson or perhaps Facebook without Mark Zuckerberg. The capital value of a business will undoubtedly be affected if its success is very closely associated with the very person who is about to leave.
How many people you employ will also be considered in any evaluation, together with their record of success and commitment to the business. Generally speaking, businesses that do not depend on a large amount of human involvement will be worth more to prospective buyers because they will cost less to run and potentially be able to deliver a better return on investment.
Buyers will also want to ensure that your business is safe in terms of compliance with regulations. The financial services sector in which Brunsdon Financial operates is highly regulated, but whatever industry you’re in, be sure to comply with the law.
The Capital Value of your Business will only ever be what someone is prepared to pay
As I’ve indicated above, business valuations are extremely complex and often very subjective. They are made at one particular point in time and – as you know – the situation in business changes daily. What is clear is that making your business as attractive and saleable as possible does not happen overnight. Some of the factors I’ve described above may be beyond your control, but there are a lot of things you can do to make your business as valuable and saleable as possible, should the need arise. But always remember, the capital value of your business will only ever be what someone is prepared to pay.
Next month, I’ll be looking at my eighth Principle for Healthy Business Finances: ‘Keep up with the times’. I look forward to sharing that with you then. In the meantime, don’t forget you can download the whole ‘Healthy Business Finances’ chapter free of charge here. See you next time!
Please note that the views expressed in the book, ‘Your Bigger Future’, are solely those of the author Brian Morman and not those of Brunsdon Financial.
Brunsdon Financial is not responsible for the content of third-party websites.
