He was a giant of a man with an endearing, gentle heart, which was sized to match his physical prowess.
He had been a talented enough athlete to play professionally for several years, but I knew him after his professional athletic career had been put behind him and he had invested the proceeds into a fledgling restaurant on a university campus.
I'm writing this on Monday.
That is significant because, this client was usually in the overdraft on Monday, scrambling to take the weekend receipts to cover his shortfall. Each Monday was a dicey exercise in counting cash and juggling payables, hoping to survive until the next payroll or other expense later in the week.
After several months of this grappling, and having tapped out all his familial resources, he approached us with his proposed once-and-for-all solution -- a guitar case.
It was simple, or so he thought.
His servers would use the guitar case at the side of the bar to throw cash and then take cash out of.
Need $20? Grab it from the guitar case! Just settled a large lunch ticket for a group of businessmen? Throw it into the guitar case. Payday arrived? Fill your pockets!
He looked so sincere, so on to something. "Mark, I may not even need a cash register! What do you think?"
"Hmmm, let me think it over. Okay, I'm done. No."
The restaurant business is extremely competitive, with very narrow profit margins. Everyone seems to have a dream that they can make it work. Barriers to entry are relatively small - just attend a blowout sale on a failing restaurant and see how cheap you can start one up on the edge of downtown.
On the other hand, the success rate is very low, as everything from liquor, to huge jars of mayonnaise, food and, yes, cash seem to walk out the door without an escort.
So yeah... No. As we used to say in banking: "Cash flow is everything." And a guitar case is most definitely not a cash management program.
To his credit, his unbounded optimism and tenacity eventually won out, and despite this one unworkable idea, he managed to survive and thrive.
Speaking of cash flow management... that is the most crucial of all issues when preparing to sell your business. More in this ongoing series below:
Getting your business ready for sale
Some items to consider when preparing your business for sale include: cash flow, timing, customer base, management team, and management information systems.
Cash flow
Companies that attract a higher "multiple" generally have high quality cash flow that is visible to the buyer, meaning the income is consistent, recurring, profitable and growing.
A multiple is simply an expression of the market value of the business relative to a key statistic, such as "5xEBITDA" (earnings before interest, taxes, depreciation and amortization).
This is what people buy - reliable and/or promising cash flow.
Put yourself in the buyer's position and critically review the risks attached to the cash flow of the business. Where possible, take steps to reduce those risks.
Anything that creates a sense of uncertainty in the buyer's mind will have an adverse effect on value.
Timing the sale
Although it is not always possible, being free to decide when to sell the business can almost certainly lead to an improved value. Avoid selling when overall valuations are depressed or when results are poor because the business is going through a rough patch.
Generally speaking, if a business is implementing a turnaround, one year of good results and good visibility of future results are necessary to shed the negative impression created by a bad year.
Customer base
Customer concentration is a common problem for businesses.
A potential buyer is ideally looking for a growing and diversified customer base. A business that is heavily reliant on one customer or a small number of customers presents a substantial risk for buyers.
Where possible, bring on new customers and expand relationships with existing customers.
Management team
Evaluate the depth and breadth of your current management team and consider making changes that would improve the business and its potential saleability.
Then again, if your key person is that crucial, they might be your buyer!
Management information systems
Well-managed companies usually have well developed management information systems.
The "it's all in my head" approach to information is never the best answer when you are asking a top price for your business. Investing in and developing good information systems will also hopefully lead to a higher value when the business is sold.
As always, this article is not meant as tax or legal advice. Readers should consult their own professionals before implementing a plan.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
