Results 1 to 6 of 6

Thread: Five things to avoid in your business

  1. #1
    Site Caretaker Dave A's Avatar
    Join Date
    May 2006
    Location
    Durban, South Africa
    Posts
    20,977
    Thanks
    3,055
    Thanked 2,462 Times in 2,067 Posts
    Blog Entries
    12

    Five things to avoid in your business

    One of the better business writings I've read this year so far starts off with:

    Add value to your business in 2015 by avoiding these five mistakes:

    1. Taking too much money out of your business
    2. Giving away margin
    3. Falling for lower fuel prices
    4. Ignoring new technologies
    5. Not learning something new

    So by now the first of your 2015 resolutions have probably gone undone, ignored or broken.

    Here are five things to NOT DO if you want to add some value to your business in 2015.

    Seriously, it's well worth the read.
    Nice one, Mark
    The trouble with opportunity is it normally comes dressed up as work.

  2. Thanks given for this post:

    lventer (02-Sep-17)

  3. #2
    Silver Member Greig Whitton's Avatar
    Join Date
    Mar 2014
    Location
    Cape Town
    Posts
    316
    Thanks
    32
    Thanked 99 Times in 81 Posts
    Some good advice there, although I don't agree with the first point as presented in the original article (i.e. "don't pay out dividends"). Keeping surplus cash in a business makes operational sense, but I fail to see how it will add much value. If anything, I would expect paying out dividends (without compromising the financial health of the business, of course) to add more value by increasing investor confidence and expected return on investment.

    Founder of Evergrow - Helping South African business owners grow their business without the growing pains

  4. #3
    Gold Member
    Join Date
    Mar 2012
    Location
    Vanderbijlpark
    Posts
    886
    Thanks
    83
    Thanked 381 Times in 298 Posts
    Greig, valuations are generally done on profits, but then monies owed on loan accounts are seen as equity (negative) and will usually result in a downward revision of the price based on profits.

    Retained income, from which dividends would otherwise be paid, is positive equity and at the minimum will support the valuation, and in some cases enhance it. Bear in mind that dividends will reduce equity and reserves, as well as cash.

  5. #4
    Silver Member Greig Whitton's Avatar
    Join Date
    Mar 2014
    Location
    Cape Town
    Posts
    316
    Thanks
    32
    Thanked 99 Times in 81 Posts
    Quote Originally Posted by CLIVE-TRIANGLE View Post
    Greig, valuations are generally done on profits, but then monies owed on loan accounts are seen as equity (negative) and will usually result in a downward revision of the price based on profits.

    Retained income, from which dividends would otherwise be paid, is positive equity and at the minimum will support the valuation, and in some cases enhance it. Bear in mind that dividends will reduce equity and reserves, as well as cash.
    This makes perfect sense, but much depends on the valuation approach. Here's my take from an investor's perspective:

    Company X consistently generates annual net profit after tax (ANPAT) of Y.

    By virtue of consistently generating Y, Company X is worth Z.

    If Y is retained within Company X, then the value of Company X is Z + Y.

    If Y is distributed as dividends, then the value of Company X is just Z.

    As I see it, retaining the income may raise the purchase price but it's not increasing the inherent value of the business unless it serves a strategic purpose (e.g. to settle liabilities or acquire capital assets that will enable the business to grow ANPAT).

    To use a facetious analogy, does a rental property have more value (in the sense of ability to create wealth) if the rental income is stashed under the floorboards and made available to the new owner?

    Founder of Evergrow - Helping South African business owners grow their business without the growing pains

  6. #5
    Gold Member
    Join Date
    Mar 2012
    Location
    Vanderbijlpark
    Posts
    886
    Thanks
    83
    Thanked 381 Times in 298 Posts
    As I see it, retaining the income may raise the purchase price but it's not increasing the inherent value of the business unless it serves a strategic purpose (e.g. to settle liabilities or acquire capital assets that will enable the business to grow ANPAT).
    Agreed when it is a proposed sale of a going concern, but it does when the proposed transaction is share based. The net assets (which is the equity and reserves) will always be a factor because it underpins liquidity. I think it was from this viewpoint that article was written.

  7. #6
    Suspended
    Join Date
    Feb 2015
    Location
    USA
    Posts
    7
    Thanks
    0
    Thanked 0 Times in 0 Posts
    I visited the link given above into your post. Contains great ideas there. I have read all of this. Sure will be reference long into the future.

Similar Threads

  1. Avoid the last minute christmas rush
    By twinscythe12332 in forum General Chat Forum
    Replies: 1
    Last Post: 14-Dec-10, 03:18 PM
  2. [Article] When Bad Things Happen to Good Business Owners and Entrepreneurs
    By BBBEE_CompSpec in forum General Business Forum
    Replies: 0
    Last Post: 07-Dec-09, 10:10 PM
  3. [Article] How to avoid 'smishing'
    By d3wdr0p in forum Scam Alert Forum
    Replies: 0
    Last Post: 22-Oct-09, 09:28 AM
  4. [Question] Things to check when purchasing an existing business
    By Singhms in forum General Business Forum
    Replies: 4
    Last Post: 17-Jul-09, 08:05 PM

Tags for this Thread

Did you like this article? Share it with your favourite social network.

Did you like this article? Share it with your favourite social network.

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •