Tips for Protecting your Company’s Value in Uncertain Times
/The extent of the economic impact of coronavirus is largely unknown at this point, but its detrimental effects on both the economy and our lives are clear.
Families are facing both emotional and economic hardship, businesses are closing (either temporarily or permanently), laid-off workers are seeking employment, and countless frontline workers are being brave every day to ensure and protect the health and general wellbeing of the public. No matter who you are, we are all feeling the effects of this pandemic.
As a business owner, you are being presented with many tough decisions during this time, balancing the needs of your employees, customers, and yourself. For most business owners, your business comprises a significant portion of your accumulated wealth, begging the question, “What can I do NOW to protect my company’s value for a future sale?”
There is no one size fits all solution as every business is unique with company specific variables and operating within industries that have all been affected slightly differently by the pandemic.
Read on for a toolkit of considerations regarding Tips for Protecting your Company’s Value during these uncertain times.
Assess the Financial Health of your Business
By conducting this assessment, you will have an opportunity to quantify how the pandemic has affected your business, as well as find ways to address or mitigate those impacts. Every business and industry has been affected differently by the pandemic, but it is important to take the necessary steps now to protect business value.
Focus on the following when assessing your business:
Finance: Examine how the crisis has affected cash flow, as well as the cash reserves of your business
Sales: To what extent has the coronavirus impacted your business’ sales and profits?
Customer Base: What impact does the coronavirus have on your customer base? Are customers having to access your products/service differently? Have their needs changed?
Competition: How is the competitive environment of your business changing during this pandemic?
Supply chain: Check to see if any business opportunities have been lost due to problems with suppliers in severely affected parts of the world
Availability of staff: Evaluate how government-imposed limitations or restrictions have affected staff mobility, especially in situations where working from home is not a viable option.
With the help of your accountant or finance manager have your financial statements analyzed, using key financial metrics that tell a story and create a reference point for future targets. Perhaps your sales are up and your business is humming right along or you have an important decision to make, it may be worthwhile to have your business valued by a business broker so that you know your business’ market appeal and if you’re on the right track to your particular goal or exit. Knowing the financial status of your business is critical to making good decisions that ensure your business stays in the best position as it sails through this crisis.
Build Your Uncertainty Advantage
Play to your strengths. This does not require you to reinvent your business, rather it requires you to become more proactive in building practices within your business that foster resilience. These practices will help you to become better at detecting signals and acting decisively.
Whatever industry you are in, you can build this advantage into your organization by:
- Staying relevant to existing customers and expanding customer base;
- Rationalizing products and supporting profitable lines of business;
- Implementing detailed cost control and cash management;
- Developing a more efficient, flexible supply chain, and
- Protecting key employees and recruiting new talent.
Work on Maximizing Cash Flow Now
Once you are done conducting an objective assessment of the financial health of your business, you may find that you’re already struggling or likely to struggle with cash flow soon. Thus, being proactive about this is key to preventing a disaster.
Making cutbacks, especially staff cutbacks, is very hard to do. But doing it can make the difference between saving your business and losing everything. The longer you wait, the worse your situation will be. If you have already done the hard stuff and you’re still having cash flow problems, see if there is an opportunity to reduce inventory levels, stretch your payables, or collect your receivables faster.
Prepare a cash flow forecast and regularly update it — preferably weekly — and try to implement the following tips to improve cash flow:
- Focus on promoting stock items that won’t last 3 to 6 months
- Increase your online presence and engage with your customers on social media
- Get in touch with debtors and offer incentives if they pay before the due date
- Negotiate regular payments with debtors undergoing cash difficulties even in just small sums
- Issue invoices the moment goods are delivered
- Negotiate payment extensions with suppliers
- Reduce spending where you can
- See if you can reduce staff costs by making a few changes or arrangements
- Seek government assistance available to small businesses
- Find ways to inject more cash into your business (investors or your personal cash)
Brainstorm New Ideas
How can you prepare for the recovery? Use this time to investigate new product potential, alternative uses for existing equipment, expanding your geographic market, or establishing an online presence to name a few. Ensure you’re getting the most out of what you currently have and look for repurposing opportunities. Taking action now will only increase the future selling price of your business and prove to buyers that you could pivot and thrive in times of uncertainty.
Get Creative on a Budget
If the pandemic has created an economic slow down for your business, now may be the time to work on your business and prepare it for an eventual sale when the time is right. Strategically select some areas of your business that could benefit from an improvement. These don’t have to be expensive or big-ticket items. It could be something that was shelved due to time constraints, but now lies an opportunity for advancement. Preparing your business for sale takes time, use the economic slowdown to get your business ready for when it is the right time to sell.
Some areas to explore within your business:
- Upgrade and optimize your website
- Cross-train your employees
- Develop policy, procedure and training manuals
- Give your premises a facelift
- Research the competition
- Ensure your accounting system gives you the information you need
- Interview and begin to build relationships with legal, tax, and business sale advisors
Implement a Strong Operating Plan
Develop and implement a strong operating plan that guides your business through these unprecedented times and is the basis for making strategic business decisions. A well-crafted plan and execution will reduce the effect of valuation erosion for several reasons.
Buyers look favourably to business’ with systems and strategies in place, it reduces the perceived risk of the proposition and sets your business apart from others. Be that least risky alternative for buyers and banks by proving you were able to adapt and navigate a crisis as effectively as possibly.
Document your Crisis Survival
Historical operational and financial performance are the foundation for determining the value of most businesses. Covid-19 will likely be defined as “force majeure,” an act of God, an event outside the control of the business that an owner could never have fully prepared for.
Document detailed evidence of the areas of your business that were transformed by the pandemic and ownership’s corresponding business decisions at the time. The documentation should touch on areas such as operations – particularly what actions were taken to minimize negative consequences, and customers – what barriers were present that may have hindered generating revenue.
Track these decisions alongside your company’s financial statements to validate financial results in relation to what was happening in the world at the time. You will have to present the facts, even the ugly ones, so you may as well isolate the financials and detail the impact now rather than trying to recall reasons for the decisions that were made. This supporting document can be used to defend future business value with buyer prospects, banks, investors, etc.
If you’re unsure of what to focus on in order to protect the value of your business, email Travis Kellett at Bridgepoint Business Brokers today. We can help you identify priority areas that will improve your operation and position you for a timely, confidential and professional sale when you’re ready.
If you would like to learn the value of your business as you make important decisions, please connect with me. I would be happy to discuss your business’ market appeal.
