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flierI’ve just left a business that on the surface looks like a thriving business that most small business owners would love to own. A stunning heritage building turned into a quality Bed and Breakfast in a beautiful sea-side location with a reasonable occupancy that should be bring in loads of income. Beautifully decorated, gourmet food, 9.6 rating on, multi award winning tourist industry awards….what more could you want for a vibrant and successful business?

But like so many businesses, built by owners who have a passion, they do look after their customer, they do love their business and all of a sudden….well eight years on, their business is starting to implode. They have no systems, they are still using a hand written card file system, that very soon will take over the entire kitchen drawer space with no room for the fresh produce the kitchen is intended for. The owner is too scared to put in systems as they may lose the ‘personal touch’! There’s no CRM (Customer Relationship Management) system, other than the antiquated card system. The food wastage is out of control, with costs increasing and profits diminishing being topped up continually by assets from other family run businesses.

After eight years of love, passion, commitment and hard work, the B and B is booked regularly to an acceptable capacity, but returning no profit and losing money. But still the owner loves the business and continues to think that hard work and great marketing will be the answer.

I see so many businesses like this, hairdressers, day spas, legal practices….all built on passion and hard work that grow and thrive, and then start to implode due to lack of systems, direction and understanding of where they really want to go. No plan at all. Yes, they do need passion, hard work and marketing, but they also need to make a profit and have an efficient cash flow and systems, KPI’s and measures.

These businesses will not only continue to lose money, even though the top line is bringing in strong revenue, the costs are increasing, no profit is being made, staff are leaving as they have no direction, they become frustrated and can see the potential but they are no longer being rewarded for their efforts, inevitably these businesses will be sold in a fire sale, or fold and lose all the money that’s been invested and many years of hard work, let alone having an asset to sell.

So what’s the answer? You need to know where you want to go, whether in two years, three years or ten years. Then, understand exactly where you are today. Do a full ‘gap analysis’ and then plan for the final goal. How are you going to get there? What do you need to do? Who needs to do it and how? What’s the road map look like? What resources do you need? How are you going to measure the results and what are the milestones along the way?

You need to ask yourself some hard questions, what do you want, do you want success, do you want to sell one day, do you want an income from the business, do you want an income from the business even when you are no longer working in it full time? What’s stopping you? You work hard, you had a great plan, you had a great business model, what’s happening now? There’s just not enough hours in the day, your staff just don’t understand what needs to be done and the cash flow is getting more difficult to manage and you’re having to top-up from other sources. A formula for success or disaster? Sound familiar? All businesses need a plan.

All businesses needs goals and need to meet legal obligations with compliance and governance, but there is more, they need to meet the outcomes and benefits of ‘why’ you originally went into business.

Understanding why you are in business and what you want and where you want to go and critical factors in succeeding. It may happen in the beginning with hard work, but if you want to build a successful business that you have an asset in that you can one day either sell or continue to earn a residual income from without working in full time, you need a plan, a strategy with clear goals of how you are going to achieve this.

Research shows 70 per cent of businesses think succession and exit strategy planning is important but only 12 per cent have a documented plan. Unsurprisingly, the main motivating factor for the creation of a plan is age.

Key question:
1. What is your business worth now?
2. What would your business be worth in 12 – 36 months time if your worked on a value improvement plan?
3. What is the ‘Value Gap’ or the financial benefit of working on the business?

The key is to provide a potential buyer with security.

The primary reason someone buys a business is to get a return on the investment.

Each potential acquisition will be judged on the level of future profits the buyer believes the business can generate and the level of risk attached to reaching these targets.

Buyers will minimise their risk by carrying out a thorough due diligence and investigate the business. Sellers can maximise their position by being prepared for the scrutiny that prospective purchasers will put the business under. The more prepared the seller the higher the ultimate price that they may negotiate.

  • Ensuring there is a sound financial history.
  • Records of a steady increase in profit for the last two to three years, with a similar I increase in sales over the same period.
  • Positioning the business as a good low risk return on the investment.
  • Highlighting an established customer base, sound internal systems, market awareness and credibility, an operational framework and cash flow.
  • Highlighting positive industry trends.
  • Highlighting company awards, testimonials or even an ecologically responsible product or service.
  • Ensuring the business does not appear to be reliant on the owner and that there is a succession of employees that could take over the existing owner’s job when he/she departs.

Research shows 70 per cent of businesses think succession and exit strategy planning is important but only 12 per cent have a documented plan.

Unsurprisingly, the main motivating factor for the creation of a plan is age.

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