The entrepreneurial ecosystem and economy in the UAE is booming, with new businesses setting up every year. In 2018, 532,000 business licences were issued in the UAE, a rise of 9% on the previous year according to the latest figures from the Ministry of the Economy. Looking ahead to the future, entrepreneurs and owners of SME companies, aim to have a highly valued business. Currently there are over 77,080 businesses on sale on some websites in the UAE. At Advisors M.E. we help companies put their best foot forward and have helped increase businesses’ values by over 100%.
The issue we see at Advisors M.E. is that companies are often not really prepared to bring in investors. As a result, we usually spend about 18-24 months working with a business to position and structure their finances so they can meet investors with the right measurements and metrics in place to ensure success.
In one case, we worked together with a company on negotiating the sales deal. The valuation of the company at the beginning of our work with them was significant, over AED 50 million. However, once the investor did their due diligence, they identified some accounting errors which led to the value dropping drastically, to below AED 20 million. This large decrease was simply due to inadequate financial reporting procedures, improper accounting infrastructure and poor financial management. This was clearly a very disappointing situation for the business owners.
On the other hand, when we worked with another company for over 18 months on increasing their valuation, we were able to help them increase their value considerably – from around AED 100 million to over AED 200 million. We achieved this by focusing on their value drivers and creating tangible milestones. With professional financial planning in place they were able to sell their business for significantly more than they originally anticipated.
We asked Mohammed Siddiqui about how to best prepare your business for a future sale.
According to Mohammed, there is a five-step system to follow. Obviously, the last step is the deal which involves sourcing investors and negotiations between the buyer and the seller. However, before starting to find investors, it is important to have a clear understanding of how much your company is worth. That is your business valuation. These two last steps stand on the foundation of accounting, financial reporting and financial planning. Without this foundation, many companies struggle to find the right investors and they cannot sell their company for its maximum value.
Mohammed reminds us that while Accounting, Financial Reporting, and Financial Planning seem mundane, they are the most important steps. These are the steps that will put your business at the forefront of the market.
Let us start with accounting. Mohammed says that you need to have the right infrastructure to capture all transactions and data properly. Then, you need to make sure that you are recording your transactions correctly in the right accounting formats. It is also critical to have a monthly accounting process. Where each all costs and revenues are recorded in an online system, or at the least in an Excel spreadsheet. So the first step is to create a formal accounting system.
Once a system is in place to account for all transactions, we can turn our focus to financial reporting. This step is essential in understanding the performance of your products and services. How much is your direct cost? What are your indirect ones? What exactly is your revenue and where is it coming from? What kind of profit are you generating from your revenue? The answers to these questions will help you predict how to move forward with your company and which segments to focus on.
Now you have some great reports and analysis, you can think about financial planning. Mohammed recommends thinking three to five years ahead and creating a detailed plan on where you would like your company to stand financially in the future and what is realistic. Your financial plan is imperative for your company’s valuation. The plan needs to include future cash flow predictions which are calculated through revenue to profit projections coupled with balance sheet projections.
The next step is the valuation and starting your search for investors. However, only with the three prior steps in place: setting up an effective accounting infrastructure, practicing proper financial reporting and planning financially for the future based on your company’s history, will your valuation be a true and realistic reflection of your company’s value. Once these four steps are in place, you can start discussing potential opportunities and sales with investors.
To get in touch or for a meeting to discuss you needs, contact firstname.lastname@example.org or call +971 25515996.
At Advisors M.E. we can effectively help you to grow your company. Talk to us about how you can evaluate your capital, consider loans from a bank, or bring on investors. We will go through each of the steps with you to ensure the most accurate valuation possible. It’s time to set up your company for future growth and success!
About Advisors M.E.
Advisors M.E. has helped many companies across the Middle East to boost their shareholder value by providing a financial review and professional valuation as part of their wider business strategy. Whether you are looking to grow your business by attracting capital investment, or are planning to restructure or exit your business, our team has the insight and expertise to support you with the entire financial process.
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