In these troublesome economic times may businesses face the twin threats of falling sales and increasing debt. Is this the time to sell your business? Today, 20% of small businesses in Canada are for sale by owner or through a broker. In 5 years inescapable demographics will push that percentage to 50%. With more sellers than buyers, prices will certainly fall. Choosey buyers will pay for the best and ignore the rest.
Will there be enough money to retire comfortably?
If that answer is no, what can be done to change that?
This article is all about business succession planning and how to do it profitably.
Step 1: Improve the balance sheet. That means reducing debt or at least changing the ratio between debt and assets so that the company has more value.
Step 2: Improve sales. Sell more but be careful of selling to poor credit risks. This increases accounts receivable, an asset until it must be collected but then becomes a bad debt. You need more sales to better quality (blue chip) customers.
Step 3: Improve profits. This can be achieved by increasing prices, reducing costs and keeping more in the company.
Sound easy doesn’t it?
Well, how easy is it to increase sales today? Can you double your sales which will therefore double profits? These are tough times and your competitors are pushing back every day.
Marketing methods are changing. Yellow pages, the workhorse of advertising for decades is in its death throes. Customers now shop on line and the younger demographic chat on social media before opening their wallets. Have you got a strong presence in that virtual world? Have you got any presence at all or have you merely got a static website that is found on page 97 of a Google search?
Can you cut costs enough to make a big difference in profitability? This will not mean counting the paperclips but real and deep cost cutting. Cutting costs in any business is important. Cutting into fat is imperative; cutting into muscle regrettable; but cutting into bone, an amputation of ability to perform.
Can you increase prices and still sell more? Your customers may associate high prices with better quality, but can you deliver a better quality product or service? And how will you measure that better service and communicate that to your customers, in 25 words or less?
How can you reduce debt when every dollar earned is spoken for? You could manage your payments better and more purposefully to reduce debts, eliminating the highest cost debt first and planning to retire all the debt within 3 years.
But please ask yourself how determined you are to accomplish all that this entails. Can you do this without help? Daily business pressures make it difficult. It takes character to create and implement a 3 year plan to improve the value of a business.
Andrew Gregson is a Senior partner with Floodlight Business Solutions where we help our clients to re-build their business. We focus on sales and the balance sheet so that value in the company is increased, letting the owner sell or retire.