Cash flow impacts the value of your business in a big way

When we say cash, we are not talking about the cash/profit on your profit and loss statement, we are talking about cash coming into your bank account. The more you can get your company generating cash, the more valuable the company will be to a potential buyer.

WHY?

When an enquirer looks to buying your company, they will essentially need to write two cheques. There is the obvious one, to you, the owner. The second cheque is for working capital. This is the money the company needs to operate the moment they take ownership. The more cash your company needs to operate, the more working capital the new owner will need to inject into the business - and then the less the business will be worth to them. On the opposite side, the more cash your company generates, the less working capital is needed, therefore the more valuable it will be to the potential new buyer.

EXAMPLE - Enquirer has R5 000 000 to spend on a business purchase

Because your business generates high cash, he will pay you R3 500 000 and put only R1 500 000 towards the working capital

The other end of the scale ...

Your business has a low cash element, therefore the buyer will only pay you R1 500 000 and put the other R3 500 000 into the working capital

Which scenario would you prefer?

If you answered the first, then lets you and I talk about where your business stands right now and how to get to the favourable side of the see-saw.

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