The numbers every business owner needs to know…
Numbers tell the story of your business, with buyers, investors, and lenders all looking for clarity, consistency, and financial strength. If your accounts aren’t in order, a deal can fall apart before they have even begun.
Key financial areas to focus on:
Profitability and margins
Strong, stable profits (not just revenues) make a business attractive. Improving margins can increase your valuation and set you apart from competitors. A good advisor will be able to guide you on what is reasonable. Analysing the true cash profitability of a business is an involved process and is something that is best done up front.
Cash flow and working capital
Buyers like to see predictable, well-managed cash flows. Unstable finances can create risk and put you on the back foot. Depending on your business model, capital expenditure and working capital requirements can be a significant area of focus when assessing readiness for a transaction.
Debt and liabilities
While some debt is normal, excessive liabilities or unclear repayment terms can put off prospective purchasers or investors. For certain businesses, debt is a natural part of the model so careful consideration needs to be given as to how the debt is presented. E.g. asset-heavy businesses with significant amounts of hire purchase agreements.
Financial forecasting
Investors want a clear growth story. Can you demonstrate how your business will continue to thrive and grow? Remember, a buyer or an investor is purchasing future cash flows, not historical ones.
In case you missed it, at the start of November, Hazlewoods, in partnership with BGF, Lloyds Banking Group, and Michelmores, hosted a ‘Funding Room’ workshop which brought together advisers and business leaders from across the region to explore the spectrum of debt or equity funding options (or a mixture of both) available today.
Take a look at our write up and findings from the session here.