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Why running your business is no different to running your car

Written by: Michael Smyth

Article Overview: Jason had travelled the length and breadth of New Zealand in his VW Beetle, but strange noises under the engine in a desire for more acceleration off the lights, meant it was time to move on. His Beetle was going to be the deposit on his new car … that was until he realised he couldn’t sell it.

Why running your business is no different to running your car

Why selling the Beetle was a problem
Jason was the first to admit that he had run the Beetle “economically”. The car didn’t have a full service history and as a result, some problems had started to emerge: a nasty ticking noise in the engine which forebode greater problems, rust underneath the wheel arches, and black smoke coming from the exhaust.

All these problems came to light on a pre-purchase inspection and as a result potential buyers were few and far between. Jason was stuck with it.

Is your business a saleable asset (or are you stuck with it)?
We have all read stories of businesses being sold for millions of dollars and most business owners harbour the same dream for their own business. Even those who don’t will one day want to pass their business onto children or family. But your children will not thank you if all you are doing is passing on a liability. Similarly, buyers will not be interested unless you have created a saleable asset.

Will your business survive a pre-purchase inspection?
Just like when you buy a car, so a purchaser of a business will carry out a pre-purchase inspection, except in the business context this is called due diligence. The due diligence process is normally carried out by a team of lawyers and their job is to highlight any problems with the business. In particular, they will look at the business’ documentation: where documentation is lacking (such as employment agreements, terms of trade, agreements with suppliers etc) then a red flag will go up.

The business history is also checked
Documentation is not the only thing that is checked. Lawyers will also highlight any litigation that has occurred to identify whether there are any problems within the business. Tangible and intangible assets will be valued. Of particular interest will be the protection afforded to any intellectual property the business owns or purports to own.

If too many red flags go up the deal could be off, or at the very least the purchase price will be reduced.

Don’t leave it too late
It is no good trying to fix the car just before you sell it. Often by then the damage is already done. Regular maintenance is the key.

With your business, the key is the development of sound systems and watertight documentation. A business that is run from the knowledge in your head is not a saleable asset. But if anyone can run your business (and make a profit) with limited risk using your documentation and assets, then you have a winner. It doesn’t matter what you do, every business has the capability to be sold one day. Whether it does, and the price it fetches, depends on your investment into systems and documentation. Don’t run your business like Jason ran his car.

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Article Tags: acceleration, desire, new zealand



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