We 're selling the firm .
In Poland, capital funds are increasingly found buying small family businesses to sell them later with a profit. Such funds have emerged with the development of a wealthy upper class that needs to locate and earn appropriately on their savings.
He buys the company, possibly the cheapest, and over the next three to five years he extensively restructures and modernizes it so that after that short period he can sell it for a profit.
The bakery industry is attractive to funds for a number of important reasons: attractive properties, easily disposable machines and easy production, a lack of capital-intensive inventories and a fast, daily cash flow in production and sales.
For these reasons, it is highly likely that a private equity fund might be interested in buying a bakery or a candy chain, so it is worth taking a closer look at how these funds operate.
The Funds employ experienced managers who value the companies they have acquired, who make changes to the working procedures and standards, but above all they find and develop profitable processes in the company's operations.
They look for deficit activities, cut unnecessary costs and invest the savings in profitable areas.
Private equity funds are based on numbers, and you can see that in the due diligence analysis, they focus on specific, selected areas.
The funds use five areas to determine the value of the company and decide to buy it.
W-MOSZCZYNSKI-2019-8-061. Cash flows
The most important factor in the valuation of a company is the data on the size of its cash flows. There are different approaches to this topic. This information can be obtained from the classic Cash Flow report.
As you know, depreciation is not an expense, but a cost, and with interest it is a tax bracket, and the experts of the fund will need to be in the bakery to compile daily expenses and revenues, as well as monthly or weekly balances and bank accounts.
In the case of a bakery with a sales network, the fund will certainly want to analyse all sales cash inventories and compare them with the daily value of internal expenditure and other variable costs associated with the daily production cycle.
2. Working capital amount
Working capital, also called net working capital or ęglem, is calculated as the difference between fixed capital (equity capital + long-term loans) and fixed assets. The greater the fixed capital relative to fixed assets, the greater the working capital.
In other words, the fund is interested in what the liquidity of the company is.
In the future, investors will want to determine the demand for working capital in the future. They will look for information on how the net working capital has historically behaved. As in the previous point, they will need monthly or weekly balances.
Therefore, it is worth checking and arranging the balance sheet of the bakery thoroughly before starting negotiations with the fund.
3. Analysis of the sources of costs and revenues
The fund managers will have the task of restructuring the bakery and before they buy it they must find places where profits are generated and unjustified costs are incurred.
In addition, even management accounting may not answer many questions. It is necessary to estimate the technical cost of production based on the calculation of full or variable costs.
In the case of the bakery, the restructuring activities will focus on eliminating the deficit points of sale, reducing part of the range and finding new markets for sale.
4, Cost analysis
The area of cost analysis is relatively simple and can be examined without the time and energy of the accounting department. The analysis is carried out on the basis of reports and invoices. The aim is to find unreasonable or too high costs. The bakery owner can analyse his own costs before the fund does so.
I'm sure it will improve the value of the bakery in the eyes of investors.
5 Industry benchmarking
Private equity funds are usually specialized in specific industries, they know the optimal levels of industry indicators, and they determine the company's potential, its level of development compared to other companies in the industry, and the owner should assess the value of the bakery on the basis of industry values.
This can help him avoid false expectations or underestimating his bakery.
The actions of private equity funds are based on calculations, valuations and forecasts of the acquisition.
A private equity fund is a specific type of investor, extremely pragmatic and calculated.
Wojciech Moszczyński — graduate of the Department of Econometrics and Statistics of Nicolaus Copernicus University in Toruń; specialist in econometrics, finance, data science, and management accounting. He specializes in the optimization of production and logistics processes. He conducts research in the area of the development and application of artificial intelligence. For years he has been engaged in the popularization of machine learning and data science in business environments.
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