31/12/2010 by info.

Actually, it’s not the speed of light, is it? It’s really the speed of light squared because, as all of us know, e = mc2.

That of course was Albert Einstein, and I doubt there’s ever been a better known equation - although for most of us it’s probably all that we all know about the Theory of Relativity. Now however it’s my turn, and I’m sure Einstein would be proud of me, although I don’t expect I’ll catch on in the same way -

V = (S - E) X D.

That’s a statistical equation of my own I’ve just worked out, and it’s a pretty important one for businesses.

It states that the value (V) of a business is a function of its profitability - expressed as sales (S) minus expenses (E) - multiplied by its desirability (D).

Let’s just focus on expenses (E), i.e. costs, because the simplest way to increase profits is by reducing outgoings. For lots of businesses the impact on profit of cutting costs by £1 is the same as increasing sales by £5.

However, this doesn’t alter the fact that there’s a marked tendency among business buyers and sellers to assume that costs are a constant rather than a variable - that you can’t do anything about them because, after all, there they are in the accounts, year after year. And not only are they always with us, they’re always going up, because that’s what costs do!

Perhaps, however, buyers should instead

· ask sellers when they last changed their utilities suppliers,
· scrutinise the energy performance certificate (EPC) for energy savings opportunities, and
· find out whether Small Business Rate Relief has been applied for.

The possibilities for reducing costs do not end there, and they should be explored. Careful examination of costs can give a buyer an opening to pick up a bargain that has escaped the eye of the seller. Sellers on the other hand should be combing through their costs and trimming them carefully to enhance the value of their businesses on the open market.

How do you mean, you don’t see what that’s all got to do with Einstein? Isn’t it obvious? When there’s a clear relationship between cutting costs, your level of profit and the value of your business? It is all relative!

Posted in Buyers, General | No Comments »

15/12/2010 by info.

A report in the Daily Telegraph on 13 December stated that “Family business owners are struggling to sell up to staff because of bank lending policies and the weakness of the economy” Which seems to be based upon a statement made by the president of the Electrical Contractors’ Association.

The president a lady called Diane Johnson stated that some of her members are “closing them (their businesses) down because they can’t find people to buy them, because the people working for them can no longer raise the finance.”

Well certainly if you are just looking for your employees to buy your business you may be disappointed.

It is certainly our experience that there is not a shortage of buyers in the market as the President declares indeed when we obtain an instruction we seem to have no trouble in obtaining plenty of enquiries.

In our opinion this article shows three failures in the selling process with these businesses leading to the business owners failure to sell:

1. The business owners have clearly failed to plan their sale, their strategy seemingly is to look for a buyer within their business and employee without access to any capital. The lack of planning will also affect the selling price of the business.

2. They seem to have not instructed a business transfer agent, rather they would prefer to blame the banks who refused it seems refused their employee funds to buy their business.

3. They perhaps want too much for their business. Business owners sometimes have strange ideas about how much their business is worth. Rather than closing down the business and get nothing for the goodwill, perhaps their best course of action now would be to simply reduce the price.

We have plenty of buyers enquiring about businesses, certainly we do not recognise a lack of buyers, confidence in the economy and access to funding to be an issue, rather that the fault lies with the business owner.

Posted in Selling Your Business, Buyers, The Economy | 1 Comment »