No business owner wants to find themselves in a position where they are failing to turn over a profit or are finding it difficult to meet ongoing costs. Once here, it can sometimes seem near impossible to turn a business back around and regain financial control.
If you are in this situation, it is best to seek out the advice and assistance of an insolvency professional — ideally one with a focus on turnaround and recovery strategies. Such an expert will be well placed to provide business evaluation services and can suggest the best pathway forward to return to operational viability.
Continue reading to discover just how a business evaluator can assist you make an informed decision about the future of your company.
Roles of business evaluator
Examine your current financial situation
If you are the owner of a struggling business, it can be difficult to get a good handle on your current financial situation. You may feel overwhelmed at the facts and figures that are confronting you, or simply not have the financial know-how to comb through all of your records and come up with an accurate final figure.
Business evaluation, conducted by a trained and experienced professional, can assist you examine your current accounts payable, accounts receivable, capital, credit, assets, overheads, and debts to arrive at a fully-realised understanding of your current financial situation.
This type of information is invaluable and will assist you make decisions in the best interest of your business, employees, and creditors.
Identify the root cause of problems
If your business is going through financial and operational difficulties, there’s likely at least one good reason for it. However, it is not always easy to identify where things are going wrong.
For example, you may be struggling to pay bills on time because you lack appropriate levels of working capital, and your cash is tied up in other parts of your business. On the other hand, losing key employees indicate cultural issues within your company, which can have a significant impact on your bottom line.
A trained business evaluator will be able to use their knowledge and experience to identify the root cause of issues within an organisation, regardless of how large and complex they may be. This will enable you to make an informed decision as to whether it is worth investing the time, energy, and money that is required to come up with solutions.
Assess business viability
The Australian Taxation Office (ATO) defines a viable business as one that:
● Is returning a profit to both the business owner and creditors
● Has sufficient cash resources to sustain itself through periods of time in which the business is not returning a profit.
It can be difficult to recover from operating in a non-viable position, however, it is not impossible. Generally speaking, returning to viability will require the business to both increase revenue and cut costs. For businesses facing significant financial problems, this is not always possible.
As a business owner, you are likely to be emotionally invested in your company and it can be difficult to step back and take an objective look at the likelihood of long-term survival. A business evaluator can provide that much-needed impartial perspective to assist with decision making.
Identify pathways forward
Sometimes, with expert advice and assistance, a struggling business can be turned around and return to commercial viability. This process often involves significant restructuring and a re-evaluation of business priorities.
Transforming a business requires extensive planning and understanding of the factors that led to the company underperforming in the first place. The last thing that you want is to only address the surface-level issues and find yourself in exactly the same place, six months down the track.
Working with a business evaluator
If you feel that your business could benefit from evaluation, you should start by researching insolvency firms in your area. Insolvency experts specialise in different areas, so look for a company that has experience providing turnaround strategies for struggling businesses.
Before working with an insolvency company, it’s important that you meet with their team members. Implementing turnaround strategies can be stressful and will involve a lot of hard decision making. You will be working closely with the insolvency team and so you want to ensure that you feel comfortable and supported throughout the entire process.
You should also be sure that the evaluator is going to be honest and realistic about your business’ prospects. It can take time to fully evaluate a company and implement an appropriate course of action. You need to have confidence that your evaluator is pointing you in the right direction and that their recommendations are viable to the point where you will be able to continue to act upon them after the evaluator has departed.
A business facing dire financial circumstances often doesn’t have long to act; reach out and organise a business evaluation today.
How to evaluate a business?
These are the 5 points on which a business is evaluated:
The size of the market. One of the most important factors when evaluating a business opportunity is the size of the market.
Relationships. Does the business opportunity come with certain relationships?
Ability to manage cash flow.
Management skills.
Passion and perseverance.
Business evaluation services
Business Evaluation Services is a full-service marketplace, guest satisfaction, and compliance auditing company. We specialize in mystery shopping and guest satisfaction measurement services in almost every industry. Business Evaluation Services was founded by current President Charles Stiles.
Business evaluation tools
The list of business evaluation tools is given below:
CalcXML
EquityNet
BizEx
Hadley Capital
Help SME
American River Bank
Frequently Asked Question (FAQ’s)
Q. How to evaluate a business worth?
Determining the value of a business for sale is complex, and there are many ways to value a business. Certain valuation methods work best for different types of businesses. This article explains how to informally determine the value of your business that you plan to sell.
Even if you get a formal appraisal of your business from an appraiser, knowing the different valuation methods can help you understand what’s going on.
Ways to determine the value of a business
These valuation methods are presented to give you some ways to explore the value of your own business and to get a general idea of where to start a negotiation between yourself as a seller and a potential buyer. Don’t assume that any or all of these valuation methods will give you an actual number, but they are a start for an evaluation. In some businesses, you might end up using all of these business valuation methods.
Property valuation
Your business assets are everything that a business owns that has value and can be displayed on the balance sheet.Assets include land and buildings, equipment and vehicles, cash, equipment, receivables Intangible assets, such as intellectual property, are also valued. Typically, asset valuations are based on the total costs required to build another business with the same assets.
Business assets can be valued in two situations: As an ongoing issue. (Normal business practice) or liquidation, sale of assets for cash. Liquidation value of assets (Eg, business bankruptcy) is much less than the value of these assets that are part of the operating business.
If you sell your entire business based on the asset valuation, you only have part of the business valuation picture. The mystical factor in valuing a business is goodwill. Goodwill is the intangible value of your business based on a number of factors, including:
Reputation
Name recognition
Customer loyalty
Trademarks and trade names
Skilled employees
Specialized knowledge
From an accounting point of view, the premium paid to the business is greater than the book value of the assets listed on the business balance sheet.
Cash flow
Some buyers want to know how much cash your business can generate. This method uses information from the cash flow statement that shows the inflows and outflows of the business for a specific period of time. The current cash flow figure is then discounted in the future. Cash flow value is often used for valuing companies with shareholders.
Q: How would you evaluate the success of a business?
Here are different ways to measure the success of your small business or startup that you may not have considered.
1. Follow the money
The first thing most people think of when they think of measuring the success of a small business is business finances. However, it’s not as easy as looking at your monthly profits and calling them a day. Instead, you want to consider three different financial statements: your income statement, your balance sheet, and your cash flow statement.
The income statement (also known as the income statement) is the first starting point. It is a way to measure the profitability of your business over a period of time. Basically it shows you how much money is coming in and going out. Usually, you want to review it over several different time ranges: by month, by quarter, and by year.
A balance sheet gives a broader view of your business or your start-up to give you an overview of the situation. This document should capture all the assets your business owns, any debts you may owe, and track the investment of you and your partners in the business. This statement gives you a better idea of the long-term viability of your small business.
A cash flow statement is a little different from an income statement because it examines how much of your assets are liquid at any given time. You might have made a ton of profit in the last quarter, but if those customer invoices are still unpaid, you can’t use the money you actually earned. Liquidity is important because you may need to reinvest that money in inventory, marketing expenses, or debt repayment to keep the doors open. It’s a good idea to have a clear picture of your cash flow if you are planning to relocate, expand, acquire another business, or recruit new employees.
2. Take the customer feedback seriously
Cash isn’t the only way to measure your small business success. A sure sign that you are fine and want to think about what’s next is the overwhelmingly positive feedback from your customers. The most important and valuable marketing is word of mouth. If you are already generating that type of enthusiasm, it is important to actually be able to identify and capitalize on your success.
This means that you view customer feedback as something to look at when trying to take stock of your location. How you collect it depends on what business you are in. From focus groups to online reviews, anything can help. The main thing is to make sure you pay attention to it.
Another thing to look at with customer satisfaction is what your loyalty numbers look like. Customers who return year after year are likely to be extremely satisfied with your product or service. That means they are just waiting to be activated as champions for your brand. Strong retention numbers also mean you have perseverance as you have good grounding for numbers to count on. It is also cheaper to sell current customers than it is to acquire new customers. Therefore, in the long run, it is good if you focus on customer loyalty.
Q: How to evaluate business model?
A business model is a basic framework for owning and operating a business, specifically the products and services the business provides and how it delivers them to customers. Business models also include pricing structures or approaches for charging money in exchange for business offers. A company with a strong business model is well positioned for longevity and growth. A business with a flawed business model can have years of success, but it is unlikely to thrive in the long run.
Profitability
Portability
Longevity
Simplicity
Conclusion
Evaluation is the necessary part in the business. Without evaluation, no business can be started. You need to go through few steps of business evaluation in order to make your business successful and growing. Various tools are available online that are used for business evaluation. Use them and grow.
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