Sunday, 6 October 2013

3 Factors That Devalue Your Business By Tiana J Wilson-Buys

Thinking of selling your business? Maybe you are just feeling the need to move on to something new, or you might want to retire after running your business for many years. Whatever your motivation, the sale of a business can be a long, complicated and emotional process if you are not properly prepared.
It is estimated that 10-15% of the UK's 3 million businesses are looking to sell or change ownership at any given time. The sad fact is that only one in 10 businesses that go to market will actually end in a sale. To give your business the best chance of a successful sale, at a fair price, you need to ensure that you avoid all factors which could potentially devalue your business.
The sale of a business can often take longer than a year to complete. Openly disclosing the fact that it is in the market can have a detrimental effect on the business. Suppliers might get nervous and doubt the strength of the company's cash flow, resulting in a reduction of credit lines. People in general have a tendency to expect the worst and your customers are no different. They might think your business is in financial trouble resulting in decisions to rather "jump the sinking ship" before it is too late - thereby taking their business elsewhere. The same can be said for employees. You do not want to find yourself in a position where most of your key employees leave the company before the sale is concluded. Confidentiality is vital for the successful sale of a business.
Changing the way you run the business
Once the decision is made to sell your business, don't stop what you are doing. It is easy to fall into the trap of leaving issues to be sorted out by the new owner. This can result in the sale of the business falling flat shortly before completion. Buyers are most critical of your most recent activity so don't cut back on marketing or customer care. Run the business as if you will still own it in another five year's time. Run your business in the same manner as you did when you built it up to be the successful venture you went to market with.
Taking out too much cash
If you own a cash business, it could be tempting to take out cash which you do not declare. Apart from the legal implications of this action, it also affects the value of your business. In effect you declare that the business turns over less than it does in reality, which means your profit is reflected as being lower than it is. Since the value of a business takes into account the turnover and profit, taking undeclared cash out will have a massively negative impact on the value of your business.
Making the decision to sell your business a few years before bringing it to market is a good idea. This gives you the time to ensure profitability is at a maximum and provides for the time to plan the sale carefully, avoiding all factors which could potentially devalue your business.

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