OPINION: How do you create value in a private company?
Spending most of my day, either reviewing opinions, doing and/or reviewing due diligence review reports, and doing research, I have come across the conundrum in as far as value creation of a privately held company is concerned.
Well, there is truth in the statement that if you want your daughter fit to marry a king… then you need to send her to a finishing school, correct?
Now see your company as a child, and that if you want to marry her off (seller dealing in people is illegal, by the way) to a king you have to polish her up a little. And no, I am afraid that a little blush on the cheeks, and some lipstick will not do the trick.
No matter how sexy the little black number is, it will never ever hide the fundamental flaws underneath.
It’s a process that starts well in advance of the sale, and you will have to plan it.
Why do you send your kids to school? Why don’t you just keep them at home and home school them?
Is it true that maybe you need to expose them to new ideas, and stimulate their vocabulary to make them more aliquant and more presentable? If accounting is a business language, do you not think that perhaps business elocution lessons are a good idea?
Although the number of business plans that I see are well thought out plans, with a lovely product, when it comes to the numbers and the figures, the income statements, balance sheets, cash flow statements, projections, financing models etc, it is as if you are asking someone to see Romeo and Juliet in the ramblings of a grade one pupal learning to read and write.
And then people wonder why business pans are rejected, and loan applications do not fly?
Give that, and here I have to stand firm - there are a wanch of bankers - that have learned to read either, and you are asking a grade one pupal to give you an opinion on Macbeth ... duh they cannot fathom the depth and breadth of the story line let alone comprehend the grammatical beauty in a well-crafted sentence.
So, I guess you are dammed if you don’t, and dammed if the reader is illiterate. So, what to do. KISS I suppose is an acronym that works well. Keep it simple stupid. At first, I took offence to the statement, and then it dawned on me, that it should be kept simple, for there are stupid people, so some pointers:
Make sure your accounting records are up to date, and that your debtors are paying you, and that your creditors are settled on time.
Make sure your cash balance is in good nick. You must have an idea of what you are going to attempt to achieve in the next year, and how you will do it, and then sit down and work out what your plans are going to cost you.
Then, from there, you must determine the extent of the finance that you will require and start working on getting the finance in place. Is it the bank? Is it a new business partner that you want to work with? Is it a loan from family and friends?
Do it for one year, and then do it for the next 5 years. See it as being prudent and document your thoughts and plans to the best of your ability. Seek advice from mentors or tormentors, read about your industry trends and where your products are going.
You must figure out how you are going to keep your company relevant.
And then finally. People buy with their eyes. Will you believe in a business plan that is on the back of a cigarette box? No? (there are unconfirmed rumours that that is exactly how a lost city was sold in a meeting.
But that happens to one in a trillion, based on a reputation of making things happen) Your financial records, your offices, your staff, etc. needs to be in the same condition as your suit if that makes sense. So, you have to be pedantic about the smaller details.
And then your business plans, and forecasts must be written down, and make sense to you and to simpletons that read it. In a private company more times than not investors back the JOCKEY. You are the Jockey.
So, take a look in the mirror? Are you the night in shining armour or the prince on the white horse or the beggar on the donkey? Take the steps to fix it. To ask for help is a bold move and people are always willing to help.
Views and opinions are good things, just be careful they are like posteriors everyone has one. Take note of the opinions of people you respect. It’s only in fairy tales that a price will place a glass slipper on a cleaning lady’s’ feet… Bippety boppety boop.
Jade Els and Willem Oberholzer are Tax advisers for Probity Advisory.