Give your overheads a makeover

If you’re thinking of selling your company, you want it to be in the best possible shape so it fetches the price you deserve. Potential buyers are going to go through the books with a fine toothcomb, and any concern with the accounts, contracts or management will reduce the value of your asset – and their willingness to buy it.

I have personal experience of this, because a few years ago I sold my own company – through Evolution CBS.

Sure, strong revenues will help realise a good price for your company, and gross profit is a useful indicator. But on the P&L, badly-managed overheads make a big dent in the operating profit. This has an impact on the company valuation, but more seriously, raises doubts about the quality of the management team. After all, money needlessly spent on running costs cannot be used to fund strategic growth or pay shareholder dividends.

Most companies are pretty hot on cost of sales: sandwich-makers are expert bread-buyers; steelworks are bang up-to-date on the price of ore. But essential overheads such as gas, electricity, telephones and fleet tend to get neglected. So as part of your preparation for company sale, it makes sense to check all your expenditure – and given that the last three years’ accounts are used to reach a valuation, the sooner the better.

Are you on the best deal?

The first step is to print out your nominal ledger and give it a once-over. The bigger overheads should be your initial focus, as these have the potential for the highest savings. These will vary from business to business, but generally include utilities, telecoms (fixed and mobile), couriers, fuel and fleet. Other costs, such as stationery, office machines, janitorial supplies, catering and merchant cards, may be smaller but can often be reduced by a surprising amount.

Most companies sporadically conduct internal cost-reduction exercises, and these are generally successful – for a while. After 18 months, 95 per cent of savings made have flooded back. Sustained cost management is much more effective, but few companies have the internal resources or expertise.

Terminate your contracts

All contracts have a term. Ideally, you want to make sure contracts expire around the date of your planned sale. Expenses that continue or remain fixed after acquisition can reduce the Net Asset Value of the business by 10s of thousands of pounds.

Do you know what your various supply contracts are and when they expire? Getting them to end at the same time can be a monumental task, calling for careful juggling and negotiation. Are you and your team going to have time for this? In the run-up to sale, all your energies should be focussed on building the company up.

Procurement is a minefield for any manager, and every industry has its own rules and its own tricks to play. Without expert or insider knowledge you are the prey of cunningly-structured price lists, confusing discount structures and devilish small print – wielded by salespeople and brokers motivated by commission.

You can cut through all this confusion and keep your focus firmly on the company sale by bringing in someone to help manage your overheads. By outsourcing to an Auditel consultant, you benefit from an additional, specialist member of their management team without incurring any of the usual costs associated with in-house resources.

Auditel is the leading cost management consultancy in the UK, established for over 20 years and comprising some 200 specialists with industry experience. Using our proprietary tools and resources, we work together to conduct a forensic analysis of your business costs and carry out a professional tendering exercise.

Auditel are not suppliers, agents or brokers – we have a completely independent view of the supply chain and work strictly in our clients’ best interests. And as we are in business to save you money, the service is totally self-funding.

 

To learn more, please call me, David Gould, on 01865 582888 or email me: david.gould@auditel.co.uk. You can also find more information at www.auditel.co.uk/davidgould

 

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