Articles by Tony Arena

While I thoroughly investigate the financials and hard assets, I am also asking questions about the people. What is the culture like. Does this current owner have the respect of staff. Will this be a happy transition?­ This is a summary of the key points from an interview between Joanna Oakey of Aspect Legal and Tony Arena of BCI Business Brokers. “How to Maximise the Value of Your Business by Maximising the Value of Your Most Valuable asset”Value of Staff:The value of the staff roster does not appear on the balance sheet, is not reflected in sales and until recently wasn’t even mentioned in discussions about value of a business. You can go back to 1920 when business valuation books talked about tangible assets only. These days a business may have goodwill as the only asset, be it a customer list that produces regular income (rent roll, mortgage loan book, online subscription services etc) or similar businesses devoid of tangible assets. Ask these questions:You can’t value a business without looking at the situation with staff. The following questions are hardly ever asked: How well are staff paid How happy are employees Do the key people want to stay on What do their contracts or terms of employment cover? While I thoroughly investigate the financials and hard assets, I am also asking questions about the people. What is the culture like. Does this current owner have the respect of staff. Will this be a happy transition?Steps to Take:You can take the following measures to strengthen your staff situation prior to a saleSit down and talk to staff before you go on the market. Take them into your confidence and tell them that you are going to sell. Find out if they would be happy to stay post-transaction. If you are a franchisor business, speak to some of your franchisees and tell them of your intention. Gauge reaction. We recently had a case I saw business fell over because of a franchise revolt right under the nose of the franchisor.Build the Asset:We had another sale where the vendor had no operational role but every morning she would arrive and make sure she walked around and found out how everyone was going. It was important for her that her staff knew she cared about them. If your staff know you care about them, they will look after you on the transaction and afterwards.Built the Roster with Foresight.You are going to sell your business one-day. Any extra people you put on will build value into the business. Choose people who are going to relieve you of responsibility within the business. If you are going to hire a general manager give yourself at least two years to bed down that position. You don’t want to go to the market with someone who is unproven and could further disrupt your life when you find out this is the wrong person for the job.Mental HealthWe live in an era where employees spend a good part of their life at work. There is often more interaction with people at the workplace than there is at home. If you create an atmosphere of support at work you will be rewarded and this will definitely show up in the bottom line. You are the coach. Let me give you an example in the sporting world. An international rugby league player once told me the best coach ever he ever had was Wayne Bennett because Wayne used to sit down with him and make him feel he was special, not just another player. In your workplace, people need to know that you care, need to feel that their job has meaning. Under those circumstances they will want to come to work and they will give you more bang for the dollar you are paying them. This is especially so in the workplace of today. Two out of four people will suffer a mental affliction in any given year. You have the opportunity to proactively search out what’s going on in your work force and play a positive part in bringing out the best in each of the people. That shows up in the bottom line and bears on business value.Mine the Wealth:Do you have many challenges in your business, to do with costs, productivity, operations etc. The wealth of experience and ideas contained within your workers is immense. Sit down with them and share your problems with them. Ask them for their ideas. They may see the problem from a different view point and might have even seen the problem from their vantage point before. This is a win-win. You may get your solution and your staff member will feel even more valued.Build your business with the people in mind. They might now show up in the balance sheet but they may be the difference in you having a good experience or a bad one when you come to sell. For more information contact Tony arena on [email protected] or visit www.bcibusinessbrokers.com.au.

1. PRIDE You think your business is worth a lot of money because you have had it for 15 years. Unfortunately it doesn't matter how long you've run your business. Its the value proposition that you're offering to the buyer that matters. You could have a business that you ran for 20 years and it could be worth nothing or you could have just started up a business and it could be worth millions. Business owners think that because they put 20 years into their business they deserve to be rewarded. No one cares how long you've been in the business 2. GREED You think your business is worth the amount of money you need to retire. The problem is that it does not matter at all to the buyer what you need to retire. The buyer only wants to investigate what future maintainable earnings are there for him or her, or what value there is in the assets. Otherwise your business is worth far less than your expectation. 3. FALLACY Accountants and business owners alike apply the wrong multiple to the wrong profit figure. There are generally accepted ranges of multiples that are applied to particular profit classes. One such multiple, called an EBIT multiple will be smaller than another class called EBITDA for the same business. (Refer to our website glossary of terms for what these acronyms mean) Hence you would need to apply a smaller multiple to an EBIT than to an EBITDA. You would be surprised to learn how many so-called experts apply the wrong multiple to the profit figure. 4. HISTORIA This is the sin of looking to history when looking for the profit figure. History and past events are relevant but are only as a guide. Many people look to the most recent tax return or a three years average as though it was the only profit marker. A buyer is only interested in next year’s profit. Work on that one and leave last year’s as a guide only. 5. EGO Business owners think their business is worth the same to a buyer as it is to them. They think of themselves and not the buyer. The mistake they making here is not taking into account the risk of the transaction. The risk of the transaction can be the risk of losing 10% of the clients or 90% of the clients, depending on the relationship that the business owner has with the clients. There are many other risks of the transaction including loss of key staff, degrading of relationships with key suppliers and other risks inherent in a new boss moving into the Managing Directors office. The key is to take steps to remove the risk from the transaction. 6. HOPE As opposed to Historia, which is obsession with the past, Hope is the opposite. It is empty belief. “I hope my business is going to improve.” “I hope my business will be worth a lot of money.” “I hope someone will buy it” Sorry, it will only improve in profit and value and sell for good money if you make it happen. Optimism is a great way to live. Hope is just desperation. 7. BLAME Business owners like to blame others for the state of their business. “My business is worth a million dollars and if its not it’s the fault of the government, the economy, my opposition, the internet, Google, interest rates, the high dollar, the low dollar, consumer confidence, business confidence...” anything that lets them off the hook. Blame excuses action. No action means that the business will never grow in value. If You Want To Maximise Your Business Visit: www.bc.com.au/maximise.html For further information contact Tony Arena (Managing Director) Phone: +61 2 9439 3399 Email: [email protected] www.valueabusiness.com.au