JPAbusiness

In our eBook Partners in Your Business, guest contributor Gareth Banks from Champ Ventures explained how private equity works and what sort of opportunities private equity investors look for.

This blog comes from Chapter 1 of the eBook, in which Gareth answers the following questions:

• What is private equity and how does it work?
• What type of business opportunities does private equity look for?
• As a business owner, how can I benefit from private equity?
• As a private equity investor, what affects your appetite to invest?
• As a business owner, how do I become private equity ready?
• Where do I go for more information?

Valuations are extremely useful management tools for business owners looking to maximise their current business performance and long-term value.

A valuation can help you identify what you are currently doing that is:

a) adding to your business value, and

b) detracting from that value.

My advice is that, if your business is greater than five years old, you should have it valued on a reasonably regular basis, say every 2–3 years depending on your growth track and the external environment the business is experiencing.

If you’ve been reading my blogs for a while now, you know I love a well-written business plan.

I encourage my business advisory clients to write things down, even in a summary sense, because it’s a good way of pressure testing your objectives and communicating them to your team.

Despite my penchant for written plans, I do know successful business owners who don’t write things down and still manage to be supreme at operational and business planning.

They do, however, employ a number of other important techniques, some of which we’ve summarised in the following cheat sheet:

Most business owners only seek a business valuation after being prompted to do so by a significant ‘event’, for example family break-up, retirement, need for business restructuring, bank lending requirement, purchase offer and so on.

My experience indicates the opposite course would be better: valuation should be considered a management tool and be done before, and separate from, such business and emotive life events.

The following case study shows how an independent valuation, carried out early, would have made life a whole lot easier for one of my clients.

Instead this client found themselves in a credit squeeze with little understanding of the true value of their business to potential financiers and the drivers that really matter to external parties.

I had a chat with a prospective client the other day – a young guy in his mid-20s, with a business partner – who has embarked on starting a technology and communications business from scratch after graduating from university.

We were talking about a meeting I had had the previous day with a business owner who had started their business 30-plus years ago, and who is now aged in their 60s.

I recalled how I met up with this business owner to talk about sale, succession and business value, and, unfortunately, my assessment was that their wholesale industrial products distribution business was going to be very hard to ‘sell for value’ because of various factors.

There are some common 'people-related' risks associated with business purchases, particularly in small to middle-sized businesses that are substantially dependent on an owner or a few senior employees for their success.

Two things can happen if those personnel aren’t retained in the business in an active way:

• the business’ relationships with customers and suppliers may deteriorate; and
• the employees’ know-how and corporate knowledge will be lost.

This blog is based on some questions I put together a while back for my senior staff to consider in advance of their Annual Performance Review discussions. We've updated the blog to include some COVID-19-specific questions.

We have discussed the mechanics of the performance review process in previous blogs, and a key theme was that reviews are ‘a two-way street’.

Senior staff members bring considerable experience and insight to your business so you need to ensure you use the review event as an opportunity to tap into those insights for the benefit of your business, as well as the individuals involved.

We are often approached by private companies looking for advice about setting up incentive arrangements for their employees, including issuing shares to provide a form of ownership.

These companies tend to have turnovers ranging from about $5 million to well over $100 million, but they all share an interest in achieving closer alignment between their people and their company visions.

We tell these clients and prospective clients, issuing shares can be an effective means of aligning and incentivising employees, but it’s not the only option.

In this blog I’m sharing excerpts from some work we’ve done in response to some of these inquiries, which outlines a range of options when creating an employee incentive plan (EIP).

The JPAbusiness Business Health Check template asks you to rate your business’ performance against 15 health factors, with an explanation of key considerations for each. It also provides some suggestions for how you may improve the health of your business, based on your score.

JPAbusiness has been conducting Business Health Checks for clients for over 18 years. In this video James explains how the Business Health Check serves as a diagnostic tool for uncovering a business' weaknesses, while also identifying its strengths.

As we head into an uncertain FY20/21 business owners and managers may be tempted to think now is not the time to prioritise staff professional development needs. I believe the opposite is true.

One of the key elements of your business proposition – large or small – is your team, and they’re going through the same anxiety you are. The COVID-19 crisis is impacting their professional lives, personal lives, physical and mental wellbeing, just as it is yours.

Even though you may be struggling simply to pay wages, the last thing you want is to lose good people, whether you lose them physically, or in the sense that they become disengaged as a result of their anxiety about the current environment.