On the 90th anniversary of the death of illusionist and escapologist, Harry Houdini, on 31 October, the Federation of Small Businesses (FSB) advises smaller businesses of two key ‘talents’ they should perfect. Avoid being handcuffed by incidents that could jeopardise the business and exit a business with the best financial return.
The SME business support organisation, says business continuity is frequently overlooked by smaller businesses. Business continuity is defined as being the business’s capacity to continue its operations at an acceptable level, when faced with a disruptive incident. That could be anything from a fire, to a flood; a major computer issue, to a severe act of vandalism.
Business continuity planning identifies risks and threats that could adversely affect the business, with a view to safeguarding personnel and assets, and enabling the business to function, in the event of a disaster.
Business owners wishing to exit their business with the best financial return, on the other hand, require an exit plan. FSB says smaller business owners should plan their exit as early in their business’s life as they can, so that value in the business can be built over several years and various ‘escape’ options accessed.
Financial performance is key to the ‘value’ of a business, as this is a multiple of its profitability over time. A good set of company books has to be available to support the figures and a potential buyer will also wish to see a potential for growth, along with products and services that are not dependent on the business’s current owner.
Sales of smaller businesses are easier to achieve in cases where the business is not over-reliant on one customer, employee or supplier. In fact, no one customer should contribute more than 15 per cent of the business’s revenue.
Repeat revenue sources are also attractive to potential buyers and they often look more favourably on businesses operating in niche markets, where there is little competition and, consequently, higher margins. Creating points of difference for a business you wish to sell is paramount and you also need to demonstrate high levels of customer satisfaction.
Being able to show that the business will not suffer, if you exit it, is also part of the art of being a great business ‘Houdini’, according to FSB. Demonstrating that you have built transferability into the business can be done by highlighting the degree to which the overall vision, mission and core values are embedded into the business.
Having robust marketing and sales plans is just as important and these should include details of the procedures that underpin the business and the ways in which the business delivers its proposition to its customers.
FSB’s commercial director, Dave Stallon, thinks that there is a special art to become Houdini with a clear exit strategy.
He says,’ Smaller businesses need to be like an expert Houdini, highlighting and preparing for all the risks that they could face when ‘performing’, whilst also creating clear exit strategies that will enable them to escape with the best possible return, when the time comes.’
Annie Plaskett, head of marketing, SME & Property Divisions, at Towergate Insurance Brokers, says, ‘Smaller businesses and SMEs are facing an unprecedented number of potentially damaging exposures. These range from extreme weather and a reliance on a complex network of technology and supply chains, to the risk of being a victim of a cyber-attack.
‘These trends leave smaller businesses and SMEs susceptible to a variety of existing and emerging risks. Managing these risks, by developing a business continuity strategy, should form part of any business plan. FSB Business Continuity provides FSB members with the building blocks they need, in order to have certainty, in uncertain times.’
Further reading on exit strategies