Wednesday, 10 December 2014

Valuing People Businesses and Adding Value to People Businesses.

I think it is fair to say that we are experts at valuing and operating people businesses. That is partly because we are a people business, and secondly, because all of our people have significant business experience, which we share with each other for the benefit of our clients.

Of course, all businesses are, to a greater, or lesser extent, people businesses. These days what used to be "pure play" people businesses can be enhanced through the use of technology, and indeed that is what we have done in our own business. So the value of our business not only lies in the great people that we have, but how we harness and magnify our people's efforts through the use of technology. In that way, we add real value for our clients which is something which others struggle to replicate.

In valuing people businesses the size of business is often a factor. The reason is not so much about growth for growth's sake, if we remember the adage "turnover is vanity, profit is sanity and cash is reality", it is more about dependencies. For instance, I have spent a large part of my career buying recruitment companies and marketing services companies, both of which are highly people dependent. A feature of both of those sectors of the market for smaller businesses is both customer concentration and a dependency on key individuals within the business, which increases the risks for a purchaser. The individuals are usually the owner managers themselves who are often the driving force behind the business. How do new owners ensure that the traction that has been created by that owner manager endures into the future? We have a number of models around acquiring people businesses that can be highly beneficial, and tax efficient, for both the vendor and the acquirer.

People businesses are typically valued around a price earnings ratio based on a cash free/debt free balance sheet. We can advise clients on how to build and lock in value to their business and how they can make it attractive to the acquirer. This is not a superficial gloss, but forms part of the overall strategic direction that can be built over time.

To find our more on building value into your business contact Nigel Bacon CEO Secantor

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