Maximising the sale value of your business

<br /> Brian Bastible

Posted by:
Brian Bastible

Business owners do not normally think about the value of their business on a regular basis. Most owners are not looking to sell and are more concerned with the day to day running of the operation.

However, if you were approached with a view to selling, would your business be in the best possible shape to maximise your sale value? Would it meet your long term goals?

In Auditel’s experience across 3000 clients, we have reduced client business overhead costs under management by an average of 21%. This tells us that those overhead costs were too high by on average 21% and this has a direct impact on the value of those business.

In a sale, businesses are typically valued as a multiple of net earnings; the multiple paid by the acquirer will vary across industries and size of business. To demonstrate the issue, we will use an earnings multiple of 5. The simple table below demonstrates the impact on the value of the business of a 10% reduction in business overhead costs. In this case, the value of the business is increased by 12.5% as a result of a 10% reduction in overhead costs.

In the event of a sale of the business, this 12.5% increase in sale proceeds is lost to the business owner. There is every chance that the purchaser will realise this additional value within their business. The solution is continuous management of all overhead costs but for many business owners, the knowledge, resource and time for this level of cost management are what prevent them doing it. They do not realise that their costs are too high, otherwise they would take action. Alternately they know it but it is on the list of things that never get actioned.

This kind of proactive cost management cannot be implemented once an approach has been made by a prospective buyer. The buyer will value the business on current and historic earnings before any cost management can be undertaken. It is therefore important that overhead cost management is a continuous and ongoing process.

It is not just in the event of a sale, there are other times when a higher business value may be important, for instance when the business is borrowing, higher earnings will help support higher potential borrowing capacity. Higher earnings will free up cash flow for investing in activity that can lead to revenue growth or support higher dividends to the owners.

The starting point is an exercise to properly benchmark your current overhead cost profile.

For an Auditel Strategic Cost Review contact Brian Bastible

Don’t forget your business costs will still be there after your summer holidays…

Business-costs

Auditel is the UK and Ireland’s leading provider of strategic cost management. Over the last two decades, their team of highly-skilled professionals has built a reputation as trusted advisors to medium and large organisations.

Chris Allison, Auditel’s Managing Director says: “Many companies still choose to divert in-house resources from their strategic roles to carry out time-consuming cost management exercises. These may do little more than scratch the surface of what is achievable. By outsourcing your organisation’s cost management to Auditel, your team will regain the time and peace of mind to use their talents and excel in their specific areas.”

Auditel began to lay the foundations of Strategic Cost Management in 2012. Extensive independent research was undertaken. Together with leading business publication Management Today a survey was conducted. The results, from over 120 business leaders, underlined the fact that there is a genuine lack of understanding in the business world between simple cost cutting exercises and strategic cost management.

The survey showed that cost reduction is just part of the process. You need a strategy in place to make sure that those costs are monitored on a regular basis. You need the right people, tools, knowledge and processes.

In addition to these features, Auditel provide independence, aggregated buying power and experience of the supplier market. This means that their service, far from becoming yet another cost can pay for itself, over and over again, by delivering highly effective and sustainable cost management solutions for the long term.

For over 21 years, Auditel has been reducing financial waste and improving bottom line profits for thousands of organisations throughout the UK and Ireland with their strategic cost management. Their clients range from small businesses to global brand. Auditel’s flexible fee structure gives clients’ the choice and the ability to manage costs and strategy for the long term.

Ireland is a high-cost location in which to do business

‘Ireland is a high-cost location in which to do business and those costs are still rising’ – Ireland’s National Competitiveness Council

The Council’s latest survey, Cost of Doing Business in Ireland 2016, reports that  ‘Ireland remains a relatively high cost location and addressing cost competitiveness must remain a key priority… a series of upward cost pressures have emerged … There is a role for both the public and private sectors alike to manage proactively their cost base and drive efficiency’.

The survey noted that:

  • Electricity is the most expensive for both large and small users in the EU.
  • Fixed Voice charges are 13.5% more expensive than in Germany and 54.3% higher than in Denmark.
  • Insurance prices have increased by 29.6 per cent since 2011. These increases are well in excess of EU trends.
  • Gas prices were almost 5% above the average euro area price.
  • Business Services showed an upward trend since 2011.
  • Business rates as a proportion of revenue grew from 24% in 2002 to 38% in 2015.

Auditel is the UK and Ireland’s foremost strategic cost management consultancy and over the past 20 years has worked with more than 5,000 businesses.  Managing Director Chris Allison, comments: “Our own research, through leading business publication Management Today, confirmed that 70% of organisations do not have a cost management strategy in place. There is also a genuine lack of understanding between simple cost cutting exercises and strategic cost management

“Most companies do not have the sophisticated analytical tools to benchmark costs accurately and monitor them after implementing cost savings.  As suggested in a recent KMPG survey, 95% of cost reduction exercises fail and costs come flooding back. We can say with some certainty that strategic cost management driven by the right people, with the right tools and knowledge, can deliver much greater returns than in-house resources alone.”

Case Study:

indexReagecon, in Shannon, Co. Clare, is one of the largest producers of Physical and Chemical Standards and Reagents.

Auditel were engaged by Commercial Director, Don Foynes, to examine certain areas of their business expenditure to consider whether any improvements could be achieved. One of Auditel’s strengths is the ability to tap into the expertise of colleagues in specific cost areas and sector specialists were brought in as required.

Mr. Foynes was delighted with the results.  “I would describe the Auditel service as a process that lifts the lid on your cost base, provides detailed proposals on what can be achieved and then presents and manages the implementation of the solution. You are kept up-to-date and remain in control at all times. The staff are highly professional and the knowledge they can bring to your business is huge. Our net savings and bottom line impact will be in excess of €250k over the next three years.”

Savings Breakdown:

Electricity 17%
Gas 8%
Industrial Gas 14%
Logistics 12%
Mobile & Fixed telecoms 15%
Packaging 55%
Stationery 40%

In fact, Reagecon are so impressed with Auditel that they are recommending them to their key suppliers, service partners and clients – the ultimate accolade!

Ongoing management

A key part of Auditel’s role is to ensure that savings and best value continue to be achieved and are examined on a regular basis. The supply of management information, review of invoices, contracts, industry changes and maintenance of strong supplier relationships are essential for the client’s peace of mind.

Chris Allison adds: “So, if like Reagecon, you believe some improvements are possible, Auditel can offer everything you need to put your cost management strategy in place. This will lead to improved efficiencies and accelerated performance. It will help you to gain a competitive advantage in your field. Book one of our Strategic Cost Review s and enjoy the tangible benefits and peace of mind that Auditel’s highly effective cost management services can deliver.”

What is Strategic Cost Management?

<br /> Brian Bastible

Posted by:
Brian Bastible

Strategic Cost Management is a term that is regularly used in business but what does it mean?  A client asked me the other day what Strategic Cost Management is, so I gave my usual reply but on the way home thought, that is a really good question.

As so often is the case, the words themselves tell us the meaning but we just need to stop and think about it.  I picked up these definitions from research but I think they work well.

Strategic

Relating to the identification of long term or overall aims and interests and the means of achieving them.
So there must be a purpose, an end game or a place where we are trying to get to.  Crucially we need to understand what the strategic goal or objective is.

Cost

The expenses that we necessarily incur in the pursuit of those strategic aims.
In business this can normally be broken down into 3 broad areas;
1. The cost of core functions or operations. What we must spend in developing and delivering our product or service.
2. The cost of acquiring, retaining and growing our customers. Cost of revenue acquisition.
3. Activities that support core operations and customer activities for example, IT, Telecoms, Accounting, General Administration, etc

Management

The process of reaching organizational goals by working with and through people and other organizational resources.
Management has the following 3 characteristics:

1. It is a process or series of continuing and related activities.
2. It involves and concentrates on reaching organizational goals.
3. It reaches these goals by working with and through people and other organizational resources.

Strategic Cost Management is the ongoing process of ensuring that an organisation has the right partner suppliers, at the right service level and at the right price to ensure that the organisation can deliver its long term goals and objectives.

It makes so much sense when it is described like that so all businesses must be doing this. Surprisingly no, separate research by Management Today and Accenture shows that only 30% – 40% of organisations consider their own cost management activities to be strategic.

Why? Time, knowledge, resources, tools?

The interview by Management Today with Chris Allison, CEO of Auditel addresses some of these questions.

“Looking back, I wish that I had met Auditel before now… for their assistance in managing my costs!”

Brian Bastible

Brian Bastible

Ex-Finance Director, Brian Bastible, is a member of the Auditel Cost Management Consultancy network in Ireland. Brian says: “As a Chartered Accountant and Corporate Treasurer, I bring to Auditel a wealth of different experiences gained over 25 years in audit, corporate treasury and senior operational finance roles. My clients and employers have ranged from young entrepreneurial companies to some of the world’s largest corporates.”

Other roles which Brian brings experience from include Managing Partner of Launch Ireland, a consultancy providing financial and project management, Finance Director of Innalabs and Head of Media and Communications Sector for IDA Ireland. Brian also spent 7 years with leading advertising and marketing services company, Omnicom Group.

“As a Finance Director, I have managed and implemented cost management programmes and so I understand first-hand the power of Auditel’s People, Tools, Knowledge and Process.

Looking back, I wish that I had met Auditel before now, for their assistance in managing my costs!”

In April 2015, The National Competitive Council in Ireland published a report on ‘Costs of Doing Business in Ireland 2015’. This included energy, water, waste, communications and business services. It stated that ‘Ireland cannot depend on benign currency movements or other external factors, beyond the direct influence of domestic policy makers to protect our international cost competitiveness. Such gains could be erased just as quickly as they were accrued’.

“Clearly, there is a great deal of assistance which I, and my fellow Affiliates can offer to all kinds of organisations. As pioneers of strategic cost management, we lead the way in how to reduce and manage the cost of doing business. I am really looking forward to getting the Auditel brand more established in Ireland.”

‘Of the organisations asked, 70% had no cost management strategy in place’

microscope-web01According to a survey conducted by Management Today, on behalf of Auditel, Ireland’s leading cost management consultancy, ‘70% of all organisations asked, have no cost management strategy in place. Yet 8 out of 10 have it on the boardroom agenda. Over 65% of them now recognise that, carried out by experts, strategic cost management really can accelerate performance, improve efficiency and gain competitive advantage’.

Chris Allison, Auditel’s Managing Director, says: “If your organisation is one of those 65%, who recognise strategic cost management expertise, we can provide exactly what you need. Our highly-trained consultants come from a wide range of management and professional backgrounds. Each of them can offer specific knowledge and insights into the many different aspects of cost management. This has been most beneficial to their clients.

“Our clients have found enormous advantages in working with us as a trusted independent member of their management team. These include:

  • Massive and immediate time-saving as in-house resources are freed up to concentrate on the core business.
  • Sustainable profit improvement.
  • Up-to-date, accurate and detailed cost management information.
  • Peace of mind, as we continue to keep a watching brief and a non-disruptive service that runs quietly and efficiently in the background.”

Chris Allison, concludes: “Keeping over 80 business costs under control can be a challenge. Every month, year in and year out, we are saving tens of thousands of pounds for small, medium and large organisations. If you would like to have peace of mind, amid spiralling costs, start with our Auditel Business Health Check. We can include a Financial Health Check as well for you.”

The 2014 Auditel National Conference – Celebrating 20 Years of Auditel

20-Years-of-Auditel-blockThe 19th Auditel National Conference took place at the Marriott Forest of Arden in Birmingham on Friday 28th November attended by over 180 delegates.

2014 has been the year in which Auditel, the UK and Ireland’s leader in strategic cost management has celebrated its twentieth birthday.

Auditel Managing Director, Chris Allison opened the conference with this reminder “Over the last 20 years, Auditel has supported thousands of clients, from Household brand, through to smaller and medium sized organisations. Across the public, private and not for profit sectors and in virtually every industry sector, Auditel consultants have instigated smarter cost management solutions, which have led to hundreds of millions of pounds worth of savings.”

A number of Auditel franchisees have distinguished themselves during 2014 and we are delighted to announce the following award winners

UK Franchisee of the Year awarded to Stephen Sowerby
Ireland Franchisee of the Year awarded to Declan Quinn
Consultants’ Consultant awarded to Alan Ford
Rising Star 2014 awarded to David Kendall
Team Builder of the Year 1 awarded to Jane Campbell
Team Builder of the Year 2 awarded to Paul Millican
Life Time Achievement Award awarded with great pleasure to David Lowe.

Our nominated charity for the 2014 Auditel National Conference is The Prince’s Trust and we would like to thank everyone who has contributed so generously to this worthy cause.

ISME calls for business cost reductions

ISME, the Irish Small & Medium Enterprises Association, welcomed the increase in employment measured by the CSO, Quarterly National Household Survey (QNHS) for the 3rd quarter, but once again called on Government to focus on business cost reduction. The Association warned that anomalies in social welfare continue to hamper job creation.

Commenting on the QNHS figures, ISME Chief Executive, Mark Fielding said, “The main task of this Government is to foster an environment in which real employment can be created. Job creation and job retention is being hampered by high business costs, an inept social welfare system and more recently, pronouncements from Labour ministers fuelling uneconomic wage expectations. Government must back and support the job creators; they must reduce government imposed business costs and introduce pro-business policies”.

“While these issues have been well flagged for a considerable period, little has been done to address these obvious employment constraints. We need more flexibility in our labour market to reflect economic conditions and be in line with other indicators of growth. Increased flexibility will give SMEs the confidence to invest and employ.”

The Government must address the concerns of smaller businesses, the main job creators by;
• Focussing on cost competitiveness, with a concerted effort to tackle business costs.
• Tackling the Social Welfare Trap and the surge in the black economy.
• Ensuring flexibility in the labour market through reasonable regulations.
• Carrying out the promised reform of the public sector including a pay freeze until 2017.
• Addressing the lack of bank credit available in the economy.

“While the government cannot create jobs its responsibility is to foster an environment in which jobs can be created. Now is the time to kick-start the indigenous economy with improved flexibility and an initiative that subsidises employers for each additional job created. That action will instil confidence, assist the creation of jobs and stimulate consumer spend, driving the recovery process,” concluded Fielding.

PSO Levy to increase by up to 85% on 1st October 2014 – Is your Business ready to offset the increase?

<br /> Declan Quinn

Posted by:
Declan Quinn

If you are a business leader / owner responsible for a medium or large electric supply for your company, you may have seen the recent communication from the Commission for Energy Regulation (CER).

The CER has just announced that from 1st October 2014 the electricity PSO Levy will increase by up to 85% for medium to large businesses. Conversely, if you pay for a smaller supply you may be experiencing “PSO apathy” and be thinking these increased charges don’t affect me. Think again; small users will see their PSO levy increase by up to 71%.

What is PSO?

The Public Service Obligation (PSO) was introduced in Ireland in 2002 post implementation of competition in the electricity market. Purpose of the PSO levy being to compensate ESB Networks for the additional costs incurred in their endeavors to produce electric from peat and other environmentally friendly (wind, hydro & CHP) forms of energy.

What is the relationship between PSO levy and Maximum Import Capacity (MIC)?

The foundation of the PSO levy charge is the Maximum Import Capacity (MIC). The MIC is calculated based on the total electrical load installed at your premises and the timing of this load. In non-technical terms, your premises MIC is like a contracted order between your business and ESB Networks. You are telling ESB Networks to always make available your MIC requirements. These requirements are determined as the upper limit on your total electrical demand. The MIC needs to be high enough to meet demands of the business.

Regulator’s role in determining PSO Levy?

The Commission for Energy Regulation (CER) determines annually what the next year’s PSO levy will be. The key question for businesses is why do we have to incur such a large increase this year and what are the drivers for this increase?

  • Lower wholesale electricity prices. Average wholesale prices have dropped by 11% from original forecast. The means that electric generation plants will need more PSO revenue to cover their costs.
  • Increased generation of renewable energy. Hence more PSO revenue is needed to cover cost of generation

How will the PSO levy increase apply to my business?

There are two business categories affected by the increase in PSO levy.

  1. Small commercial customers with an MIC <30kVA. For this group the PSO levy will be €18.47/month as opposed to current €10.82 / month.
  2. Medium and large energy consumers with an MIC >30kVA. Medium and large customers will now pay €2.85 / kVA as opposed to current €1.54/ kVA.

Note:– for medium and large electric consumers the MIC and PSO charges can account for up to 11% of your monthly bill at current rates. Under the new PSO levy from 1st October 2014 the new charges will now account for on average over 14% of the monthly bill. In monetary terms, let’s assume you have a medium supply with an MIC of 350kVA. For your business the annual cost increase will be €5,500 (i.e. the business must find an extra €458/month to fund the increase in PSO levy).

In short the PSO levy charges are unavoidable; they are essential to pay for investment in renewal energy. However, there are ways to reduce the impact of PSO levy increase on 1st October 2014.

  1. Use Less Energy. An obvious answer – surprisingly overlooked by most businesses.
  2. Review your MIC. When was the last time someone measured your actual electrical load requirements v’s your planned loading and contract to ESB Networks?
  3. Perform and Energy Audit. Energy audits can identify some “low hanging fruit” which could potentially reduce your loading. This would then lead to reduced MIC and would lower the businesses’ PSO charges.

When was the last time you reviewed and took action with your electric fixed charges like PSO and MIC?

As Winston Churchill once said, “ I never worry about action, but only inaction”.

Inaction is not an option when your energy costs are rising. Contact me to discuss your options to try and offset this increase.

 

How many companies do you need to manage over one hundred business expenses?

Answer: With Auditel, you only need one!

microscope02-300x260According to Deloitte’s third biennial cost survey 2013, 76% of respondents expect their company to reduce costs over the next 24 months. However, they also found that the failure rate for cost initiatives climbed to 48%. This means that nearly half failed to achieve their goals.

Chris Allison, Managing Director of Auditel, the UK and Ireland’s leading cost management consultancy, explains, “Keeping over one hundred business expenses under control is not that simple. These days, cost, purchase and supply management is recognised as being a complex business skill.

It requires specialist training and sector specific experience, which most companies do not have available in-house. Diverting key personnel from their core roles, to managing business overheads, isn’t the best use of their time or the organisation’s money.

“Many companies are turning to outsource this discipline and over 3,700 have chosen Auditel. For the majority of our clients, one Auditel consultant is able to offer effective cost management in most expenditures. If extra help is needed, they can draw from a team of over 200 specialists and a host of market-leaders in other key sectors.”