Renovate your Business for a Bigger Return
To get the maximum return for a lifetime of entrepreneurial effort when you sell or leave your business you need to build a company that will operate profitably, and for the long term, after you’ve gone.
The good news is regardless of where you are in the lifecycle of your business a few improvements will increase its value whether you decide to sell, expand further, or just pass it on to the next generation.
And the team at Wilson Teis can help you project manage any or all of those business improvements whether it’s a complete overhaul, or just a few simple renovations
Be Risk Averse
Good governance is probably not the first thing on your mind when you start a business, but managing risk early will lay the ground work for business growth, performance and risk management, and compliance.
In the early days this can simply mean having a decent business plan, getting an accountant to review it, getting advice about your responsibilities as a business owner, and setting up your business to start trading legally.
Put together a few basic reports that you can review regularly just to make sure cash flow is being managed and early business plan targets are being met.
If your business is already in the growth stage more formal accounting and reporting structures will help you communicate, control and measure the performance of the business more profitably.
Build financial and business knowledge in the team through these formal structures and meet regularly to discuss how things are going, so you recognise risks and opportunities and can take immediate action.
Or develop close relationships with trusted advisers who can do it for you if you can’t afford to bring that knowledge in house.
When your business reaches maturity potential buyers will see it as a low risk investment opportunity thanks to a well-established compliance and governance framework.
Document your deeds and actions 
Documenting policies and procedures isn’t about creating a manual that no one on the team will ever read. It’s about creating a tool that will help you manage your business more effectively and ultimately more profitably.
Documenting policies and procedures will help you manage the business risks you can control by:
• Detailing the steps involved in key tasks, incorporating worker experience
• Acting as a training tool and minimising the risk of key staff turnover
• Bringing consistency, and efficiency, to key processes
• Acting as a starting point for process improvement
Keep things nimble, use checklists and bullet points to keep these documents useful and relevant. Make sure you revisit them at least annually to make sure they are still current.
Get professional help to set up a simple documentation framework when you are starting out to give you something to build on as you grow.
Get a system 
Putting in place processes to monitor and manage your business only works if you can rely on the data you are using to make decisions.
So getting a decent accounting system in place, and using it properly, is fundamental. Incomplete or inaccurate data can be costly to a business at any stage in its lifecycle.
Making the wrong call, missing a compliance deadline or misreporting the financial position of your business could mean losing customers, incurring penalties and losing profits.
But good systems don’t just stop mistakes, they put you in a position to manage your business better and more efficiently and that means bigger profits.
It also means that the true value of your business is documented from day one, and when it comes time to sell.
Get professional help to pick the right system and invest in training. Consider outsourcing until your business is established, and review system performance regularly to make sure it’s keeping up with business growth.
Take out the revolving door 
Start-up marketing is often just you making a lot of phone calls as you build one-to-one relationships with a handful of customers.
But over-reliance on the good will of customers towards one person is a risk, and as the business grows you can’t always be on the other end of the phone answering queries.
In the early stages of growth managing that risk can be as simple as introducing other team members to customers and building trust with the whole team.
As the team expands develop and regularly review a more detailed sales and marketing plan, and if possible recruit a specialist into a sales and marketing role.
But don’t neglect old customers in favour of new ones. A small but dedicated band of loyal customers is better than a revolving door of one-off buyers.
A well-established loyal customer base backed by a standalone sales and marketing function is a sure sign to any potential investor or buyer that the continuity of your business is assured even after you’ve gone.
Incentivise the team 
It’s difficult to quantify intangibles such as staff motivation when you are valuing a business, but smart buyers or investors recognise the value of a loyal and productive workforce.
Staff incentive schemes are a useful way of promoting productivity and building team commitment to the company rather than the boss.
Team members who are invested in the performance of the company will be more motivated and productive, and less likely to leave when you do, and that will mean bigger profits.
But it doesn’t always have to be about giving everyone shares in the business. Short term financial incentives are also useful, especially in the growth phase, to get a little extra push from the team.
Be consistent and make sure you know what you are trying to achieve with the incentives you put in place so you can measure the result.
Think big and be bigger 
It’s fair to say the bigger your business the more it will sell for. But it’s not just in absolute terms that business size can mean a bigger sales price.
Businesses often use earnings multiples as a way of determining sales price. An estimate of future profits based on existing profits is considered to be a fair assessment of what a business is worth.
So for example your business is valued at three to five times the current or an average of recent profits.
Built into this is an estimate of risk, business continuity, and stability, so it makes sense that bigger businesses have higher earnings multiples.
Putting in place steps to increase the size of your business – not just profits, but turnover – makes good sense too since it’s a fact that businesses with a turnover of more than $5m sell at higher multiples.
But if that’s not feasible you can still act like a big business.
Formalised operations that minimise risk, and maximise business continuity and profitability after you have gone, increase the chance of your business being valued at the upper end of the range of earnings multiples, and also give you a higher profit to base that valuation on.
Don’t over tax things
It’s always worth thinking about whether your business structure meets your business objectives, but even more so when a potential sale or retirement is on the horizon.
Prioritise tax planning to minimise exposure to Capital Gains Tax (CGT) when you sell or transition to the next generation. Assets bought and sold within 12 months don’t benefit from the CGT 50% discount so plan accordingly.
Or investigate the option of a self-managed super fund (SMSF) to hold business property on behalf of the organisation. You can read more about setting up an SMSF here.
Leave on your own terms
Creating a business that operates independently from you is not easy but it will mean you get the best return when you decide to exit.
Build succession planning into your business plan early and get good advice from trusted advisers throughout the life of your business to help you put that plan into action on your terms.
You will find more detailed insights into succession planning and how Wilson Teis can help here.
It’s never too late to start thinking about business improvement. At Wilson Teis our qualified team can help. Call today for a free informal discussion on how we can develop a business improvement plan for you.
