Read an interesting article in the Aust Financial Review recently outlining the probable future for small business owners in Australia. It reminded me of another reason why it is so important for business owners to ensure their operations are running at maximum velocity.

 

The article covered the facts that small business owners are currently waiting longer and longer to sell their businesses. The time a business is on the market has grown substantially recently to over recent months and buyers of businesses are currently spending up to 1/3 longer to find a suitable business.

 

In my view there are many reasons for this, some of which are:

 

·         Banks have tightened their lending criteria. With nearly 70% of all business purchases requiring funding and over 80% of purchases having difficulty finding adequate or appropriate funding, there is no surprise a business is staying on the market longer.

·         Interest rates have been increasing almost every month. Albeit this has slowed and economists are predicting a stand still in this area for a short period, rates are higher now than they were last year. This increase in rates will be placing increasing pressure on the businesses for sale to show ever increasing rates of return, otherwise the buyers will look elsewhere.

·         There is an increasing supply of businesses on the market. One only has to look in the paper to see the increasing number of Receiver Sales to know the number of businesses for sale has increased.

·         There is a silent seismic demographic change occurring. A high percentage of the baby boomer age group are business owners. As they continue to grow older, the number of wanting to sell out is growing adding to a continual growth in supply of businesses available.

·         The GFC may have caused many of the baby boomer owners to delay or withdraw from the market, increasing the risk of pent up supply or the risk of oversupply down the track.

 

Dennis Laundy from Account firm, “William Buck” was quoted in the article as saying, “A track record of good, solid financial performance is the main factor that will increase the value and attractiveness of your business”.

 

This quote is quiet right; however the bit he didn’t say was, HOW do you get that track record of good, solid financial performance?

 

If selling your business within the next 5 years is on your radar – then NOW is the time to take some action to improve your chances against the ever increasing competition for a smaller pool of buyers. Buyers of a business will often ask for the last four or five years Profit & Loss Statements and Balance Sheets. By acting now to improve your business process and productivity will provide you with the track record they will be looking for in 5 years into the future. By improving your performance now and for the next 4 to 5 years will increase that ever important EBIT multiple you will be able to ask in that competitive environment.

 

So how do you do this? Here are my 5 quick take aways that will help you start on that improvement path:

 

1.       Ensure the systems within your business have you operating in a lean, no waste and value adding way.

2.       Lower the amount of capital required to generate the net profit of your business.

3.       Re-examine your product and customer profitability.

4.       Re-establish good business discipline in the areas of inventory and control.

5.       Fully understand what your cost to serve an order is.

 

While these five steps may seem simple in design they are complex to successfully implement execute and most importantly make stick for the long term. Call me to discuss how you might get this to occur in your business.

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