BV “learnings”July 6, 2018
Last post I talked about the Mysterious Vernacular of Valuations by giving a couple of examples of jargon used in the BV world. The vernacular will continue later, but one word that won’t appear in the list is “learnings1,2,3″.
After a short social media hiatus, I realised that Value ADE is 18 months old, walking and nearly out of nappies. Not long I know, but when 50% to 80% of businesses fail in their first 18 months, pleased not to be in that mix.
The “lessons I have learned” in that time are:
- there is a genuine need for quality independent valuations in private business
- all businesses are impacted by a question of value at some point, whether it be an issue of succession (40% of our work), purchase / sale (20%), restructure (20%), dispute or divorce (15%), or benchmarking (5%)
- there are some fantastic businesses out there, particularly the ones that fly under the radar with revenue less than $10 million. I estimate 50% of these owners have significant wealth trapped in their business, creating both an opportunity (to convert some of it to cash) and an issue (is there anyone out there that will buy)
- finding funds for growth is tough for private businesses, unless you empty your own pockets (equity) or plead for mercy from your bank (debt)
- further, unsecured bank facilities are hard to find for small private businesses, even with sound cash flow management. Understand your ability to borrow to grow the business, given the relative cost of debt to equity
- owners that treat their business like an investment, rather than a personal bank account, are most likely to add value and ultimately convert that investment into cash in future. Put aside some money each year to protect and understand the performance of your investment
- too many business owners fight after 3 to 4 years. Unfortunately, the story starts with common goals and a handshake, but life changes. See the next point
- all businesses with multiple owners need a shareholder (partner / unitholder) agreement. Understand the owner exit mechanisms in case of a fight, sale, default, or whatever is thrown at you
- and once more, treat your business like an asset Solving illiquid investments
Thanks for reading.
1Special mention to Peter Miller
2A quick search found 20 websites and three government departments using this word
3”Learnings is a stupid stupid word” quote from Jeffrey McManus