I write about a lot of topics, because I was taught to be curious; (I do like Ted Lasso’s “curious” quote). This week I wondered if I should take a step back; somebody very close didn’t know I was not an accountant in public practice.
My Bad! the writing. This week, a step back – something you might not know.
Negotia Group has just entered its “teenage” years. We work for owners of small to medium businesses, and in particular for builders, trades and construction businesses. Our clients are usually facing one of a handful of moments: a sale, a separation, a succession; or now the change in the capital gains tax laws. All these events mean the value of their business now needs to be established. What they tell us is remarkably consistent. They are uncertain what their business is worth. They are wary of a process that seems expensive and complicated. And a good many have already been given a number that made them question the sanity of the provider the moment they asked a hard question of it.
› The armchair valuation
There is no shortage of people willing to put a figure on your business. Very few have any idea of the market, even fewer will leave their desk to do it. A valuation prepared from an armchair, built on the accounts alone, tells you what the financial statements say. It does not tell you what the business is.
In building and construction, that gap is wide. Work in progress, contract revenue, licensing and a workforce built on subcontractors are exactly the things a buyer will scrutinise, and exactly the things a generalist is most likely to misunderstand. What is not understood is usually discounted as risky.
How long would it take a buyer’s adviser to find the weakness in a number that was never tested?
And being curious helps. I get on site, I investigate the business itself: its people, its contracts, its work in progress and the market it would sell into. The number I arrive at reconciles to real market sales information, which is why these reports are used in negotiation and in court, and why they survive due diligence. I can defend the figure as real, not hypothetical.
Being on site has had some remarkable beneficial outcomes: Learning about why some-one got into that field, what the opportunity was and why an owner does something a particular way is all the stuff that desk-jockeys never see. How a business actually assists their clients success can often be a remarkable component of the Intellectual Property (IP) within that enterprise.
Benjamin Graham, as Warren Buffett recalled in his 2008 letter to Berkshire Hathaway shareholders, put it simply:
“Price is what you pay; value is what you get.”
Most owners only ever sell a business once. It is worth knowing the difference before you do. And if you do choose to sell, we will see it through: value it, prepare it, take it to market and stay with it to settlement.
› One person, start to finish
Unlike the cheapest of three quotes, nothing is left out to win the work on price. And unlike practices where the file changes hands, it is one person from start to finish: one point of contact, one standard. The person who takes the brief is the person who signs the report.
Speaking of price – we can all see the logic in the phrase “You can get cheap, speed or quality – but you cannot get all three” Our systems prove our commitment – we don’t ask you to fill out online forms, make judgement calls, or choose from a set of multiple choice questions. I will dig and keep on digging until I understand. I know a lot, but I will not assume I know about your business.
One Queensland seller wrote that if you need a broker “who genuinely cares and just keeps constant, honest contact”, I am the one to speak to. I will take that. She also noted that most of the due diligence “was completed before the business was put on the market”, which is precisely where the hard work belongs.
› Consider this
If you do not yet know what your business is worth, who will be the first to tell you, and whose interests will that number serve?
A confidential fifteen-minute conversation costs you nothing. Call Kevin Lovewell directly on 1300 551 757.
~ Kevin Lovewell
