Your potential to boost your business sale price is directly related to your ability to demonstrate growing sustainable profit in yoru business.
It won’t matter if you run your business under a company, partnership, trust or sole trader structure, the principle remains the same: Increase sales and reduce costs will increase profitability! If that sounds too obvious, think of the number of mismanaged companies that regularly make news headlines during these times and seem to have overlooked this basic principle.
Business Profits can be increased significantly by scrutinising costs, and is important because increasing sales alone without controlling costs will not benefit your busines value. Here are some of the costs you must be concerned about if you want to increase your business cash flow and profits in a way that increases the business valuation:
1. Taking income from the business without declaring in the business financial data is not only an illegal way to avoid tax and leave you vulnerable to penalty, it is also a major drawback that will reflect in a poor valuation of your business.
2. Poor management decisions expose your business to unnecessary risk.
3. Burying personal expenditures in the business accounts also affects the valuation of your business.
4. Too much poorly managed credit can affect your business value because the interest costs eat into your profits.
5. Too many slow or non-paying debtors (people or businesses that owe your business money) can also affect your profits because it may require you to use costly overdraft facilities while you wait to be paid.
6. Operating your business with the dreaded business disease known as ‘Leaky Bucket Syndrome™’
Don’t go wild spending your business income. Make sure you are declaring a healthy profitable return on your business. Not only will it improve your business valuation, but it is also the best way of ensuring your potential buyers will be more likely to be granted finance to fund the purchase. Remember that financiers only like to lend money on businesses that have healthy cash flow and profits. If your buyers cannot secure finance to purchase your business, that means you can’t maximise your financial return and move on to the next phase of your life with the wealth you had hoped for.
Like to know more? Read the book “Your Business Succession”
Here’s to Your Profitable Business Succession!