PREPARE YOUR BUSINESS FOR SALE - Strategies for Demise

PREPARE YOUR BUSINESS FOR SALE

Strategies for Demise by Mark Corke

Mark is a Business Broker, who writes articles on, and runs seminars on “Preparing you Business for Sale”. Should you wish to register for some of Mark’s free articles and tips, Here is the link.

Both Mark and I are of the opinion that ensuring that your Business is Prepared for Sale at all times will ensure that your business always commands the highest value. It actually increases the value of your Business quite considerably.
I sat in a strategy meeting of one of our clients last Friday. The discussion revolved around how the business could improve its BBBEE scorecard.
After some discussion with opinions swinging first this way, then that, it was resolved that from 1 October the business would only purchase from suppliers who were able to demonstrate a level 4 or better scorecard themselves. The result of this policy change is that our client will benefit its own scorecard exactly the way the designers of the system intended, as its procurement score is lifted. But what are the consequences?
"Kites rise highest against the wind, not with it. " Winston Churchill
Discussions over the merits and demerits of the BBBEE legislation aside; what struck me was the ease with which the decision was made. A motion was tabled, a debate ensued, and a major policy change was made. I found my thoughts wandering to the well being of the business’s current suppliers. What will be the effect on those suppliers’ employees and their wider families, come the end of October?
It was so easy: An economic and political imperative will become the destiny of other small businesses very soon. None of them have any warning that they will no longer be servicing this customer of theirs.
Then on Saturday, a week after the strategy meeting above, I was in Durban and was asked to meet with a guy who wants to sell his business. Fairly standard stuff, I know, but bear with me: As the discussion progressed, it transpired that his biggest customer accounts for an astounding 80% of his turnover.
Now that may make for easy invoicing and collecting, but it is extremely dangerous for any business, small or not so small. In fact in this situation, the business owner is little more than the incentive driven head of the customer’s service department, but without the employee protection afforded in legislation. Let’s face it, if there is a change of management, ownership or heart in the boardroom of the customer, all that income could dry up in an instant… or after a short debate one Friday afternoon!
As we run valuations on businesses, we ask three questions in this regard:
What is the percentage of turnover attributed to your biggest customer?
What percentage of turnover do your three biggest customers account for?
80% of your turnover is attributed to what percentage of your customers?
This last question is a direct reference to Vilfredo Pareto’s famous 80/20 rule, and the greater distance that any business can put between itself and the classic ratio, the better. In this context, this rule would state something along the lines of “20% of customers account for 80% of turnover”.
Retailers are famously immune from this rule, but agencies, factories and professionals are not, and need to guard against turnover complacency making them blind to the enormous risks dressed up as “continued ongoing bankable business”.
This and other strategies for business success while preparing your business for sale are covered for free in my email course, for which you can register here. So far we have 500 subscribers, all of whom will be head and shoulders above the rest of the crowd one day when they cash in their current money spinners.
By the way… with all that under the bridge, consider what it may be like for the new supplier of the first business who does have his BBBEE ducks lined up. They are about to grow some with very little extra effort.
And if your turnover is below R35M per annum, achieving a level 4 is dead easy - a bit like lining up two ducks.
If your turnover is approaching R35M per annum or is already exceeding this magic figure, more ducks enter the lineup, and getting them to stand in a straight line becomes a bit more tricky. BUT it is at this level that opportunities for owner wealth gearing magically appear.
A few weeks ago I wrote about this sort of circumstance and offered a solution which would gear the business owner's wealth dramatically over the next few years. For many business people who are currently knocking heads with their BEE scorecard demanding customers, this should be revisited.
You can write to me to ask me more if this situation applies to you, or enjoy the benefits of Prepare your Business For Sale by joining the seminar email course. You won't be charged a cent, I promise! The feedback I have been getting from subscribers has made it a very rewarding task for me. If you haven't already subscribed, please do so.
CheersMark Corke