HOW MUCH NEW INVESTMENT DOES YOUR SMALL BUSINESS NEED?
Let’s say you want to sell your small business for £2m in five years time. How’ve much new investment do you need?
In order to be certain that you will find a buyer prepared to pay you this amount you will need your small business to produce about £350,000 of profit in year five. This is based on a small business selling multiple of 5 times profit, giving £1.75m. The remaining £250,000 will be made up from retained cash in the business.
So, in order to generate £350,000 of profit, you probably need to turn over somewhere around £3m in year five. This is your starting point for working out your business plan financial analysis section. You need to work out what your turnover and profit need to be in each year in order to achieve the year five targets. Once this is done you can then figure out what resources will be required in each year to deliver the turnover. From this you will then know how much new cash is needed in year one to get the ball rolling. After year one the business should be self financing out of profits.
This all sounds easy – in reality it’s very difficult to calculate accurately and experience in this area is essential. This is where I can help you. More on this later.
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