5. Team, Suppliers and Customers
A significant asset of most small businesses are the staff. Employee details are very important to the purchaser of any business. What are the details of the staff such as job description, experience and skills, performance reviews, work history and pay rates?
Will key employees stay if the business changes ownership? How dependant on the successful operation of the business are certain staff? Are the employees hard to get? What skills or education do they require? Is the job very technical and what is the employee market like for these staff should they decide to leave?
Are certain staff totally responsible for sales? Do they have signed non-disclosure agreements in place prohibiting them from taking business to a competitor?
What is the tenure of any agreements or contracts signed by current staff? Do employees require a high level of training? Is there a process in place to retain good staff? Retention of employees is essential and the systems they know are key to a smooth transition to a new owner. Train your staff and they may leave but a worse situation is to not train them and they stay!
The business should have a detailed list of all suppliers.Are their contracts in place with certain suppliers? What suppliers have discounts or special deals? Are they dependant on a certain spend rate? Does the business have exclusive buying rights and sales of certain products?
Does the business have a large range of products or choice? Can any one supplier be replaced by another should they fall over or disappear? What line of credit do the suppliers have? Do they charge interest on late payments?
Are you buying at the same or similar prices to your competitors? Never be over reliant on any one supplier.
The business should have detailed list of all customers. The list must be current, depending on the business, no older than 12 – 15 months in most cases
The list should be as detail as possible to allow for contact and marketing opportunities to these customers. Do any, some or all customers qualify to have an account? What are their credit limits? Is interest charged after late payment?
What is the difference in value of creditors to debtors? Is the business financing huge debt of customers? Remember a new owner has to mostly have similar terms to retain the customer so if the business is carrying lot of debt that will have to be considered at sale time. The new owner cannot ring all the customers and tell them they do not have any credit if they have always had credit.
The business should not be totally reliant on only a few customers, probably no more than 15% of turnover for any one customer. What owners are buying are your customers as that is the cash flow from the business.The value of the business, in most cases, is the value the customers have generated in the past, not the future as that is the only real proof of sales income you have.