Musings on business value, sale preparation, sale negotiations, sale structure.

Archive for June, 2013

Racing to the end of the line

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As the nation has been taken by the interesting behaviour of prominent families in exhuming and re exhuming departed members of the same family, real life has been happening and ending for a bunch of interesting folk – like you and me.

A little more than a week ago two trucks ran into trouble down the steep hill linking Ontdekkers Road to the N1 Western Bypass in Roodepoort. The trucks careered down the hill, dragging smaller passenger vehicles, ripping them and their contents to pieces. One truck jumped the centre island into the path of oncoming traffic. Those oncoming smaller vehicles had been jostling for position from the traffic light around the corner behind them, before the upcoming steep hill, as they always do. When the dust had settled one truck was a mangled wreck and eighteen cars were damaged or destroyed, including a number which had been parked outside the casualty entrance at Flora Clinic, behind a palisade fence.

Four days later, the MEC, who was apparently still counting the injured (yes that’s right) said something had to be done… blah blah blah… the usual too little too late, which ignored the fact that the very permanent traffic speed monitoring camera which had been taken out more than three years previously by another vehicle, had never been replaced.

The last I heard, before the tragedy disappeared from front page reporting, was that five people were dead and eighteen injured. I think it would be fair to say that for the most part, those affected were entirely innocent, simply going about their daily business, as we all do. Imagine their terror as they saw those trucks belting down the hill towards them. If you know the road, you would also know that at the point of impact there is no place to go, despite all your best rehearsed emergency plans.

The distress of victims’ families today, as they deal with the aftermath, is the reason we are encouraged to purchase life and disability insurance. I do not know who any of the victims are, and I can only guess that any of them might be business owners, but let’s just consider for a moment that one of them is (or was) a business owner. For this special person there is another consideration besides the life and disability insurance available to employees. Business owners have an asset in their businesses which many rely on as the source of their future pension.

A good business should hold a great deal of value for the owner or the beneficiaries of his estate after only a few years. The problem is that it can only be realised on the sale of the business or shares of the company.

It’s not as if you can take this asset (worth several millions) to a bank and use it as security for a bridging loan, or use it in its raw form to purchase an annuity. Selling in tragic circumstances almost never gives the seller anything close to fair value. A big part of the unfairness revolves around vulture buyers, sure; but even sadder for the survivors is that the unconscious or dead owner has left very little by way of clues as to where to find the “stuff” which gives value to the business – mostly because most of them don’t know what dictates value.

You can be quite sure that vulture buyers will spend a great deal of time harping on all the negatives in the business to your already distressed family. So while we can quite rightly complain and whine vociferously about politicians and local government officials, we as small business owners are very often our own worst enemies in supporting the value of this precious asset, we call “our business”.

As a mergers and acquisition practitioner who generally represents sellers of businesses, it often falls to me to try explain to widows and orphans why the business which has always provided for their every need is not worth what it should be, simply for the fact that we have so little to work with. The crazy thing about the very easy solution to the problem is that all the answers are usually in the heads of business owners while they’re alive and kicking. They just don’t bother to invest only a little bit of time into securing their families’ well being.

Amongst the most basic requirements are the following:

  • Knowing accurately, what the real market value of a business is; not the braaivleis valuation which is more often than not, very wrong. It is disastrous to find out too late that the business worth half of what you were counting on.
  • Filing in one place, ALL the statutory requirements of the business.
  • Making provision in your will for the continuance of the business, making provision for the sale of it if necessary.
  • Knowing yourself what impact your business’s particular supplier, customer and staff mix has on its value, and having in place a strategy to strengthen any weaknesses which may exist.
  • Understanding all the exposures of your particular business, and how each impacts on the value.
  • Realising that there is a well-defined, internationally recognised calculation of “goodwill”, and that it has nothing to do with multiplying anything by anything else, despite what a beer filled braai buddy might tell you. He won’t be around to pick up the pieces at crunch time.

It is these issues and others which will be addressed at an (almost) free seminar in Sandton on 18 July 2013 at 7pm.

Many aspects of the previous PrepareYourBusinessForSale™ seminar will be included, plus a whole lot more. In particular, I am asked so frequently about valuing  businesses, that a large portion of the seminar will be dedicated to this.

I hope to see you there

 

Why do I say “almost free”? 18 July is widely recognised as Mandela Day. It is Nelson Mandela’s birthday. On that day people are encouraged to do something in service of the community, for free, for 67 minutes – one measly minute for year Mandela gave to public service. So I am presenting this seminar for free on that evening, although the time is likely to be about three times the required minutes, by necessity. All the administration, teas, coffee etc will also be donated, as will the venue. But I am cognisant of the low esteem of “something for free”, so I am asking every attendee to donate at least R380 to the Vula Program.

All donations will be paid directly to Vula by attendees, and section 18A certificates will be issued for tax and BEE purposes by Vula. Once you complete the form and register, you will need to look for registration confirmation in your email inbox. You will then receive banking details and further correspondence regarding the evening.