Tuesday, 22 May 2012

Are you creating Wealth in your SME business( part 2)

To the TEAM SME Owners in SA.

Following from my 20th May blog, there are two types of businesses, those that create a Lifestyle for the owners and those that create Money Wealth, ie- the value of the business when you sell it.

The Key is for these two types to come together, in your business.

A few years back, I was looking at a project with a new client, needed to repostion his business, so in our chats I asked him if he knew the value of his business,.

Yep he said, about 15million, the business had been operating for 10 years, he, (the owner) was 42 wanted to sell his business at age 50, great goal, vision, so I asked to look at his balance sheets, and other financial info going back a few years.

Heres the deal he was in for a shock, the business had made big losses for the past 2 years, which had affected his Retained income base in his balance sheet. he was in a B2B business, one key product, sales were on big decline. My view was that the business was valued at about 4million, excluding good will, stock etc.I advised that he should chat to an auditor/ accountant, and set up which valuation method to stick with,( the stating point to give focus.)

Lets be clear, there is really no one best method of valuing a business, it depends on the type of business you are in.

For me the quickest and simple way is to focus on the amount of Retained Profit/ Income you have in your Capital Employed section of your balance sheet, if you can show steady profits every year, yes there are dips in profit from time to time, but you get the message

Till next time may the Force be with you, I am your silent partner helping you work on your business

Guy Daines

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