I’m struck by how many of the business owners that I meet don’t consider this. And when I raise the subject, they will usually tell me that they are relying on a private rental property and a modest pension for their retirement.
They don’t see their business as a saleable asset but as a source of cash flow that will have no value when they stop work.
And so often when I look at the financial structure of their business its only assets are the debtor book, (some of which isn’t collectable), creditors about the same value as the debtors, some cash in the bank, and equipment and stock which would fetch less than book value if sold off.
So, it’s true, such a business is really not saleable, just something to close down and walk away from, as do 250,000 other UK small businesses owners every year for this very reason.
But most could be sold for a six or seven figure sum if managed differently.
And such an amount would transform the owners’ retirement finances from ‘getting by’ to luxury.
Yet I get strong objections to that proposition such as “this business is all about me, so it isn’t saleable”
I strongly disagree and put it to you that any and every business is saleable
Well, it’s instructive to first look at big businesses which are all about money and ROI to see what they do. Not to be as ruthless as them but to learn for free what you can adapt.
Here is what they do (just in their financial management stream – there are 4 others*):
1. Measure financial performance constantly, comparing each month of this year v the same month last year to understand what’s happening, why it’s happening, and to devise corrective action, while there is still time.
2. Manage cashflow to make sure they collect quickly and pay slowly
3. Focus on profits to keep raising income and suppressing costs through sales, pricing and cost control strategies
4. Manage assets to minimise the money tied up in them and ensure that each generates a return. If not, get rid of it. For example, post-Corona, do they still need an office? Could they outsource manufacture?
5. Funding working capital not by borrowing but by invoice discounting, asset finance or selling shares
6. Budgeting & forecasting to decide where they are going
7. Financial reporting systems that show weekly /monthly early trends for action now
8. Management accounting to view 12 times a year in depth what the annual accounts will look like in time enough to manage the outcome
9. Finance Acts compliance by getting their accountants to check them over before each year end
10. Tracking financial ratios to watch the trends that predict how their business will perform if not either corrected or reinforced
11. Financial planning to ensure that the business sets out with a realistic plan of each year’s performance with the resources in place to achieve it
12. Financial management by staying on top of the plan and changing direction, strategies, and resources to get the best available outcome
13. Buying financial support effectively by knowing who best can provide it, and the right moment to call them in.
At face value, much or all of this sounds time-consuming and costly, bureaucratic even. And to an extent it is. But big businesses do these things for the very good reason that it works, knowing that time invested doing all this provides a very good payback and ensures their survival.
And remember, every big business was once a little one whose founders had the foresight to introduce strong financial management at an early stage.
The average big business sells for 14x pre-tax profits. Yet I have seen small businesses making £50K pa close down for £50K instead of selling as a going concern for £500K+
It may seem that chasing another order or dealing with a customer crisis is a better use of time, but not if it’s all you do. Better financial management would make the orders come in automatically and prevent the customer problem in the first place.
Knowledge is power and good financial management provides the knowledge that gives you the power to make the smart decisions that build a saleable business worth millions.
Most of what I have instanced above are easy to implement. And if you can’t or won’t, your economical AI Business Advisor® will do it for you, helped by low-cost apps.
Your first step is for free and takes 15 minutes by:-
Booking a free assessment here
to find out how much your business is worth today, what it should be worth, and the actions needed to get it there. All in a comprehensive report tailored just for you.
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“Solving your business problems quickly and affordably”
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(*The 5 business streams are Marketing; Operations; Systems; People; Finance)