Is Your Business Really Worth What You Think It Is?

This is the time of hard knocks! Do you spend more time on your business than spending with your family? Are you emotional about your business? 

The reality is that often your emotions drive a greatly inflated value of your real worth. You need to come down to earth and understand the perception of what your customers, banker, accountant, business broker and other parties as to how they see your business. There may be a big gap between your emotional value and market value. What we must do is to narrow the gap! 

Do you know what type of business owner you are? In New Zealand there are three business owner profiles. The largest segment of 50% comprising the Lifestyle Seeker, the Business Builder of 35%, and the balance of 15% the Passionate Pursuer. Where do you fit?

1. The Lifestyle Seeker
The business owner who is happy to drift along and let the income roll in while there is a expectation of this paying for the boat, the bach and the BMW (the 3 Bs). What happens when you retire or poor health drives you out of the business?

There is no formula for the 3 Bs fitting into the state superannuation scheme!

2. The Business Builder
The organized business owner who does not want to drift along, and has plans to make growth happen and earn a good living. When the day comes to exit, the owner can realize a high cash value for investment and live in comfortable retirement.

3. The Passionate Pursuer
The business owner who is the person who loves the work they do in the business, and to that extent, making a profit can often be secondary to their passion. This can be a high risk and expensive way of doing business.

Where you are today

Ask yourself what shape is your business in today and are you happy with the direction it is going? What we all agree on is the current recession has shown how difficult it is to run a business with shrinking markets and the banks cutting back their credit. Cash flows are suffering. 

For the Lifestyle Seeker and the Passionate Pursuer the situation is particularly harsh and many of these businesses are fighting for survival. The Business Builder is also facing severe challenges. Their businesses are no longer worth what they were two years ago.

The worst option today is for business owners to do nothing! They need to "break the loop" of their businesses drifting and steer a course.

We never know what is around the corner

This is a story of an electronic engineering business. Over the years the business grew and enjoyed a reputation of providing high quality products in a niche market. The success arose from the specialist skills and dominant character of the engineer owner. In the 1990s the owner's two sons joined after qualifying as engineers. For awhile the business followed good practices including regular performance reporting meetings. In 2000 the wheels started to fall off with the owner as a result of feeling the accumulative strain of hard work and became more impatient and ill-tempered. One son soon left and the immediate consequence was the stopping of all team meetings and also delegation of all decision making. Systems and practices started to erode. Until 2007 this did not affect the profits in the accounts. The second son became disillusioned and with pressure from his wife resigned in 2008 - there was a lot of heart break in all the families. This broke the owner's heart, literally with a stroke. The owner was forced sell the business and there was little tangible to sell apart from plant. Instead of a business worth $1.5 million in 2006, it sold in early 2009 for $0.4 Million. 


Breaking the loop

The solution is to break your isolation and contact your Chartered Accountant who is experienced and skilled in dealing with many other business owners in the same situation. You are not alone! They are well positioned to help you make the required changes for a better business and life. Your Chartered Accountant should be skilled in asking the Rudyard Kipling who, what, why, where and when questions.


Summary

It is important for business owners to communicate with their Chartered Accountant. There are always opportunities for continuing improvement to a business in order to achieve best efficiencies and growth. For a planned exit or change of business structure you need to be in a trusted business advisor's safe hands as your retirement may be at stake.

John McIndoe is a Business Development Specialist/Facilitator (CA) and to add to his skills recently became a certified Corporate Business Broker with Business Broking North Shore Ltd (phone 09 442 1824/mob: 027 271 0586). John is working alongside Chartered Accountants to give a dedicated and specialist service to their clients in maximising their profitability and eventual sale price.

 

Acknowledgment of thanks to MYOB for using their October 2009 Business Monitor research report.


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