The Best Way to Run Your Business
by Scott Grady , CNS Partners
We often have clients that come to see us with questions like: ‘How much is my business worth?’, ‘What do I need to do, to sell my business?’, ‘How can I achieve the maximum sale price for my business?’, along with other questions of a similar nature.
The short answer is that you shouldn’t need to do anything to get your business ready for sale. Sound like a strange answer? Let me explain…
The best way to get great results for your business (to make maximum profits while in business and at sale time) is to run your business like you want to sell it tomorrow. This includes: great record keeping, having Key Performance Indicators (KPIs) in place, managing your cash flow, and regularly monitoring the performance and direction of your business. Having clearly defined business goals and an exit strategy is also a must. Like any investment, you should be starting your business with a clear idea of how you will sell out and how to maximise the sale price.
This may seem like a very simple concept but great record keeping is essential. The best businesses we deal with have immaculate record keeping. This does not mean that they spend all of their time doing the bookwork. It means that they see it as an important part of their business. Business owners all know that they must keep records to satisfy tax office requirements. Most people in business now keep these records using accounting software, like Xero, MYOB or Quickbooks. Unfortunately for most, entering the information into these systems and sending the file through to the accountant at the end of the financial year is where the story ends.
Having great financial records allows business owners to monitor how they are going and react to changes in performance. Usually if business people have good attention to detail in this area, they are doing many things well, across all aspects of their business. This does not need to be a solo endeavour, for those of you who think there are simply not enough hours in the day! Take advantage of the team of professionals who assist you, whether you engage a good bookkeeper or an internal accounting team – it is, however, important to manage the process.
Having a clean and accurate set of accounts and reports is great but you still need to move to the next step and use the data to review and improve the business. This includes reviewing KPIs that matter to your business and industry, managing debtors, creditors and cash flow in general, and benchmarking performance from one year to the next and against business budgets. Having a grasp on these key elements shows that you understand your own business and can monitor how it is performing. Too many business owners sit down with their accountant at year end and ask, “How did I go?” If you don’t know the answer to this question before you walk through the door then you are letting yourself down and need to rethink the way you run your business.
The benefits of monitoring the business closely include being able to respond quickly to opportunities and threats, ensuring cash flow is adequate for business needs and being able to rest easy knowing how your business is performing.
Goal setting is also a very important part of running a successful business. Like all aspects of your life, having an ultimate goal and smaller manageable goals along the way is critical. Goal setting allows you to move forward in business and in life. The goals must be able to be easily defined and measured.
Another critical element is having a plan for how you will exit the business. This involves having a clear idea of how value is created in the business. Business owners should establish an exit strategy and sit down regularly to review this plan, to determine if it is still realistic and achievable. The exit strategy should include consideration of the following items:
– Understand the Value Proposition – What is your business is worth on the market and how can you increase this value?
– Get the legal structure of the business correct – Is the current structure appropriate for sale?
– Ensure accuracy of financial information – Are the accounts in good order and do they clearly show the profitability of the business?
– Determine possible target market for purchasers of the business (i.e. small business owner or industry leaders)
– Refine systems and procedures – Are these documented and clear for a new owner to apply?
– Get all agreements in writing – No more ‘handshake’ deals
By regularly ensuring that your business has the above in place you will be doing many things daily that guarantee that you are running a highly successful and profitable business.
As highlighted earlier, you do not have to do all of these things yourself. Your accountant or business advisor can partner with you, to assist in the process of running and constantly improving a successful business. We can give you the tools to help you manage and monitor all of these things or meet with you regularly to discuss. Some of our most successful clients have overcome the ‘compliance only’ mindset and now embrace the value proposition of using advisors (and good data) to greatly improve their profitability.
To contact Scott and to find out more please visit the CNS website http://www.cnspartners.com.au/