Business Transfers, Albert, And The Speed of Light

31/12/2010 by info.

Actually, it’s not the speed of light, is it? It’s really the speed of light squared because, as all of us know, e = mc2.

That of course was Albert Einstein, and I doubt there’s ever been a better known equation - although for most of us it’s probably all that we all know about the Theory of Relativity. Now however it’s my turn, and I’m sure Einstein would be proud of me, although I don’t expect I’ll catch on in the same way -

V = (S - E) X D.

That’s a statistical equation of my own I’ve just worked out, and it’s a pretty important one for businesses.

It states that the value (V) of a business is a function of its profitability - expressed as sales (S) minus expenses (E) - multiplied by its desirability (D).

Let’s just focus on expenses (E), i.e. costs, because the simplest way to increase profits is by reducing outgoings. For lots of businesses the impact on profit of cutting costs by £1 is the same as increasing sales by £5.

However, this doesn’t alter the fact that there’s a marked tendency among business buyers and sellers to assume that costs are a constant rather than a variable - that you can’t do anything about them because, after all, there they are in the accounts, year after year. And not only are they always with us, they’re always going up, because that’s what costs do!

Perhaps, however, buyers should instead

· ask sellers when they last changed their utilities suppliers,
· scrutinise the energy performance certificate (EPC) for energy savings opportunities, and
· find out whether Small Business Rate Relief has been applied for.

The possibilities for reducing costs do not end there, and they should be explored. Careful examination of costs can give a buyer an opening to pick up a bargain that has escaped the eye of the seller. Sellers on the other hand should be combing through their costs and trimming them carefully to enhance the value of their businesses on the open market.

How do you mean, you don’t see what that’s all got to do with Einstein? Isn’t it obvious? When there’s a clear relationship between cutting costs, your level of profit and the value of your business? It is all relative!

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