Kundun Consulting

One of my large clients discloses during a Board meeting that it is time for he as the major shareholder to move on from the business and sell out his shares. Subsequent discussions with the other shareholders results in everyone agreeing that the business will be put on the market as a whole so that each can realise their full value.The problem - the business is not ready for sale!Anyone wanting to sell a business has to do a number of things before throwing the whole thing on the table:

• Have your last 3 years of financial information reviewed by an auditor and prepare accounts which meet statutory purposes.
• Value the business at today’s market value.
• Identify issues that will effect the sale price.
• Minimize arbitrary spending to maximize the published returns.
• Clean up any intellectual property issues - believe me there are many!
• and so on.

The transition to sale is a long road. It means ensuring that you can account for everything that your business reports and the work it does. This can take some time in order to realise the full value of your sale.

I was recently sitting with a client who was trying to negotiate the purchase of a block of equity in a real estate business which was significantly more diversified than a normal real estate business. 

As we are discussing what he was trying to do; he proceeds to tell me that I should go off and negotiate at a specific price. Immediately alarms bells started ringing in my head.

“How can you determine the price before we have performed any analysis?”

To which he replied that he

“Knew what the business was worth and just needed to do the deal.” 

Which brings me to my point.

Many people looking to purchase a business do in fact know what the price of the business should be. They have extensive experience in the market and know roughly what the turnover is. They know that they can easily extrapolate that to get a “ball-park” purchase price.

The problem is that this is a strategy that is fraught with significant danger.

Without engaging the correct advisers to look into the financial and operating affairs of the prospective purchase you are running a real risk of buying a lemon. More damaging to any potential deal is that you also have effectively fixed a price in your head which will be difficult to unwind. A move of say 10% away from your figure may be necessary to do the deal but may not be possible because you already have an expectation.  

The moral of the story is that you should be selecting an advisor experienced in this area of accounting/consulting and letting them come up with the true value of the business. Be prepared that it may not come back as you anticipated but sit there with an open mind until you can justify the advice being provided.

And then make your decision.

PS Be very aware that your personal accountant is more than likely not going to be the person who should be doing this work for you. They are too close to “the action” and you do need an unbiased and realistic review of the business.

MOTO: - Seek out the right advisors. 

Small business is a complex place - we all know that. How do we all cope with a complete lack of resources:

• People - if only we could afford who we need!
• Capital - We all want more to take that opportunity.

What can Kundun do for you - well stay tuned. Apart from “How to Improve Your Business” tips we will be bringing you many opportunities to tune in and discuss issues that are effecting you. My experience has been that many small businesses experience the same problems - a real estate office has the same staff attraction issues that the hairdresser next door does.

If we can all band together and  work out innovative ways of attracting and retaining staff -  then we are all on the way to greater success.