April 27, 2025 • 24 mins
Will the business you are building last beyond you?
Many business owners are building a lifestyle business rather than one for generational wealth. If you want to create a legacy rather than a job it all starts with you.
In this, my first solo podcast episode, I explore what it means to build a legacy with your business and what you need to do to prepare for the future if you aim to sell your business.
From understanding what generational wealth means, to implementing effective governance structures. I highlight the challenges of scaling a business and the role of financial leadership in ensuring operational efficiency and long-term success.
It’s not too late to create your legacy, listen up to find out how!
"Are you building a legacy or a job?" – Julie
You’ll hear about:
- Educating business owners on acquisition and exit strategies.
- Financial controls are essential for scaling a business effectively.
- Generational wealth means creating a business that lasts beyond the owner.
- Many businesses fail to sell due to lack of preparation and knowledge.
- A CFO can provide strategic value, but timing is key.
Connect With Julie Wilkinson
LinkedIn - https://www.linkedin.com/in/juliewilkinson-accounting/
Tik Tok – https://www.tiktok.com/@wasolutions
YouTube - https://www.youtube.com/channel/UCUvq6gfNoP_4dfIJulL6C6A
Facebook - https://www.facebook.com/wilkinsonaccountingsolutions
Website - https://wilkinsonaccountingsolutions.co.uk/
Find out more about our brilliant sponsor Acquisition Masters here - https://www.acquisitionmasters.co.uk/
Before you go, don’t forget to leave a comment and review if you got something out of this episode!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:03):
Hi, I'm Julie Wilkinson and I'm a chartered management accountant and I'm excited to belaunching the Build and Exit podcast.
This podcast is for business owners and entrepreneurs who are looking to expand theirbusiness portfolio by acquisition or at some point in the future want to exit their
business.
We're going to bring real life stories and experiences of people who have grown byacquisition, who have exited their businesses and other areas of business such as funding
(00:28):
and cash flows.
So there'll be lots of opportunity to learn different areas of business and how you can inthe end transition your business from a lifestyle to an asset.
So look forward to seeing you soon.
Hi, and welcome to the Building an Exit podcast.
I'm Ginny Wilkerson and I'm your host.
I started the podcast at the back of the work I do in my company, Wilkerson AccountingSolutions, because I found there was a massive gap in the UK and across the world in terms
(00:52):
of exit planning and business owners and founders scaling to maximize generational wealth.
So this is my first ever solo podcast.
I've had quite a lot of people message about some topics that they wanted me to cover.
And I thought it's a good platform to share my experiences and why I'm trying to bring theeducation from the podcast and also put some key things, especially from an accounting and
(01:16):
finance perspective, that's critical for businesses who want to scale.
I don't know.
I've never really shared my background on the podcast.
So just a little bit about me.
I'm a chartered management accountant by trade.
I used to work in corporate businesses for about 20 years, running sort of multi-millioncompanies and managing large scale teams and mentoring.
(01:41):
And I decided to start my company because I saw that I feel the actual accounting servicesin the UK is relatively poor because
there was a gap in knowledge and skills in terms of what sort of a traditional accountingand bookkeeper does versus what you would see sort of a strategic finance partner doing to
actually scale businesses and help them on their track.
(02:03):
Now, I think there's a knowledge gap for entrepreneurs in the SME world when you'relooking especially around sort of the 3 million to 20 million mark in terms of knowing
what a finance team can deliver.
Unless people have come from a corporate background, I find entrepreneurs, you know,they're not used to hierarchy of structure.
And if you don't, only know what you know.
(02:24):
So I'm here to deliver the message of, you know, why a finance team and sort of governanceand controls is really crucial in that scaling and transitioning your business to an
asset.
So my mission is to help owners build generational wealth.
And when I talk about generational wealth, what I'm finding is
You know, I've been involved in over a hundred acquisitions now and I speak to hundreds offounders and business owners, either buying or selling.
(02:49):
And in the UK specifically, 75 to 85 % of businesses that go into market don't end upselling.
And there is a reason for that.
And those that do, the truth is at the minute is a buyer's market.
And we know that there's estimated over 600,000 businesses that's going to be looking toexit over the baby boomer generation over the next 10 years.
(03:09):
So obviously,
With everything that's also going on in the UK with sort of millionaires leaving and taxchanges, there's a big risk to the UK economy in terms of jobs going where founders are
sort of closing shop because they can't sell.
So if 85 % of businesses that go into market don't sell, the interesting concept is whenfounders are starting and scaling, I speak to business owners in all different sizes.
(03:34):
I often get, they often say, oh, that'll never be me.
I'll be okay yet.
If 85 % of businesses aren't selling in the end, they were those founders.
So there's a gap in knowledge and sort of expectation of where businesses can go.
Because when you start businesses and we have entrepreneurial people, they're in the midstof running their businesses.
But sometimes it's chasing the next sale and the infrastructure isn't getting set up inthe background.
(03:58):
So I wanted today's podcast is going to be around sort of financial controls.
finance teams and how it's such a crucial aspect to scaling your business to actuallycreate generational wealth.
And generational wealth to me means that your business can carry on past you because inthe end, we're only on this earth for so long.
(04:18):
No one knows how much time they've got.
And the question is, are you building a legacy or are you building a job?
If you're building a job, that's fine.
There's nothing wrong with that.
But in the end, a job stops and at some point you might want to retire.
And some people may go, well, I never want to retire.
But then we know that, you know, we don't always have a choice.
We have ill health.
And then at some point in life, you may come to the point where you can no longer run thatbusiness.
(04:40):
And then you have to decide, but what do I want that business to do?
So the first myth I want to take on is that actually, when we say exit in a business, exitin a business doesn't just mean a business owner has to sell their business.
It is obviously an end form.
And there's different ways that you can sell your business through to sort of generationsof family management, buyouts, employee trusts, or obviously to third party buyers.
(05:07):
But actually a lot of business owners just want their bit, want to have their freedom.
And if you want to have your freedom in a business, which means you can choose to go onholiday for, you know, maybe a month, two or three months at a time, then really you are.
part exit in your business.
Because if you're not away for more than a week or two week period, is an average holiday,because nothing really necessarily will critically fall down in those periods of time.
(05:32):
We're looking at if you're away for a longer period of time, will the business criticaltasks fall down and could that significantly impact the risk of the business?
And the truth is, out of the surveys that I've done, not many business owners, and we'relooking at this 85 % that don't sell.
These are the business owners where if they stepped away for three, forget the fact thatthey're selling, if they were five years earlier and they had said, I'm going to go and
(05:56):
step away from my business, if they can't step away from their business, they're fallingdown.
The truth is when they go to market, is somebody going to actually want that business,especially at the value that you want as the seller.
So this is like the fundamental problem is it doesn't have to be a full exit immediatelybecause what we're saying is
(06:17):
What you're doing is you're slowly transitioning your business and effectively it movesfrom a job over to an asset.
An asset is something that generates money.
So some people look at assets, things like crypto, property, gold, all of those areassets, but then in reality, so is your business.
Your business is just another form of asset that can generate income.
(06:38):
The difference is we have to build those businesses from the ground up.
unless we acquire, which is where acquisition comes in.
Because acquisitions is obviously a good route to acquire into something or to obviouslymassively grow a business operations quickly.
therefore, it's still an asset, it can still generate money, but it's not quite the sameas an independent asset.
(07:01):
That's just easier to buy and it runs.
You you have to sort of build those businesses.
And I don't believe in the experience I have with business and is that many people arethinking that far ahead.
You know, there's a lot of pushback where you can't forecast and plan that far ahead.
There's, there's circumstances out of my control.
The truth is, yes, you can't control the environment, but you can control how you dealwith and how prepared you are for situations.
(07:30):
And this is what we talk about control.
So controls is effectively risk mitigation.
What's your biggest risk and are you protected against it?
So we go back and look at some of the big things that have happened in the economy likeBrexit and COVID.
And people go, it's not my fault.
I didn't know it was going to happen.
(07:50):
No, but what's actually happened is forgetting the fact that COVID happened and maybe yourrevenue dropped.
If you had planned, what's my margin of safety?
So a margin of safety is effectively what's the lowest point that my business can copewithout any sales.
So forgetting COVID happened, if you had regularly looked at where's my margin of safety,what can my business cope with?
(08:14):
How long a cash would I have in the bank?
If these scenarios happened, the truth is when COVID came, you would have been prepared.
You may not have been able to stop it and perhaps it may have gone below the threshold ofwhat your margin of safety was, but you would have known.
So where this happened in the January when the COVID started,
(08:35):
Those that were prepared would have probably known in two or three weeks.
They would have known, I've planned for this.
This is my situation.
I've got to deal with it.
Those that didn't plan were just frantic.
my God, my business is going to go down.
I don't know what money I've got.
haven't got, I'm just not going to pay my taxes.
And those that didn't prepare are typically the people that went and got the COVID andbailout loans and are now in financial trouble because of that, because the people that
(08:59):
were prepared knew what they could take, took what they took, but planned and managed thatcash.
people that wasn't prepared just took the money, spent it all, not necessarily onthemselves, but on the business, but they didn't really plan and they perhaps spent it on
things that they shouldn't have spent it on and they didn't really plan.
And then they got into financial difficulty later down the line.
So planning is a real part of risk, risk mitigation.
(09:25):
And I believe not everything's in our control, but everything can be thought about.
And that would be part of your risk mitigation strategy.
So your risk mitigation strategy is because you have got risk that your turnover can dropwithout something like COVID.
We see business demands change.
Now we're seeing the current Trump put in the tariffs in the US.
(09:48):
That could change your business model.
That could have as severe impact on our business as essentially COVID coming in andhitting.
Maybe not in sales drop, but in profit drops because of the costs.
you know, there's always going to be external influences that are impacted us and we haveto choose as entrepreneurs who are we going to be?
Are we going to be those people that plan or are we going to be those people that justfirefight on what's happening in the economy and letting that impact how we feel?
(10:17):
So then we look at financial control.
So risk mitigation, what's our biggest risk and how do we mitigate it?
And then we look at how does my business trade to mitigate those risks?
So we have
It is hard for businesses because we have ethical responsibilities and we have legalresponsibilities.
There are certain legal responsibilities in different industries.
(10:37):
Obviously different industries are more heavily legalized than others, which is normal.
But obviously we all have things in our different industries in our life where we have,you know, in our business where we have certain legal obligations.
And sometimes that costs money, that costs money and you don't necessarily see the valueat the top line in terms of the sales.
So that would be something like my business has reached the audit threshold.
(11:00):
I now need to bring on an auditor to do my accounts.
As business owners, I know because I see and we speak to them, they don't see any value inthat.
They're like, but why do I have to pay to have my accounts audited?
I've had my accounts for years.
The reason is you've grown to a level and you're now legal.
You've now got a legal obligation to stakeholders, not just a moral obligation, not justan ethical responsibility anymore.
(11:20):
And you have to, you know, you're at a size of a business where you've got to be seen toactually let your managing things.
correctly.
And that's an area where people get into big financial difficult, well not just financialdifficult, but they can get into issues when they start going into those audit thresholds,
because that's when people start and third parties start to independently review how isyour business trading financially, but also against sort of legal obligations and what are
(11:47):
you reporting to stakeholders and things like that.
And then there's ethical responsibilities.
It's just how do you want to trade ethically?
Which suppliers are you using?
Are you paying staff fairly?
There's lots of things now in the world where we have a social corporate responsibility.
And I know business owners are really passionate about looking after staff and customers.
So that's something that we're looking at.
(12:08):
So we have these responsibilities and then we obviously have to manage day-to-day trade,business growth, employees.
And then as owners, we want to maximise our own wealth, you know, that we don't startbusinesses for nothing.
We're investors, we're investing our time, we're investing our cash and we want to buildsomething off the back of that.
Whether you're acquiring or whether you're organically growing, you're doing a similarinvestment.
(12:31):
You're just doing it in different ways.
And you want something at the end of that.
And in the end, that's really hard to get.
Because what I see happens, and this is where we come back to the 85 % of that don't sell,is businesses chasing growth.
So it's sales, it's sales, it's sales, they employ people, they bring in a couple ofcontractors and things are going really well.
(12:53):
They're bringing on really good customers and then bang, the owner starts to feelcompletely, they were already busy and now things are completely out of control.
The reason it's got out of control is because the sales have come in.
They've had brought employees in to do the doing and when there was only one employee, itwas easy to manage that scale to maybe 10, 12, 15.
(13:14):
possibly even more, and actually no infrastructure has been put in for those employees.
So sometimes there's not even job specs and sometimes there's not objectives, even basicthings like that.
Sometimes they are in place, but even when they are in place, are they actually deliveringor are people being moved into roles because other areas of the business isn't set up and
(13:36):
things are just happening and everybody's firefighting.
That's the typical situation.
So the owner is now completely out of control.
or feels out of control because now they're still doing everything they were doing, whichwas meant to be released from the staff that they've brought in.
But the staff don't do what they're meant to do.
It doesn't necessarily mean the staff are all bad at their jobs, but they just have nocontrol.
(13:57):
They have no processes to follow.
Now the owners got all these people to manage and they've got to deliver and they've gothigher customer demands because they've probably got bigger customers and more of them.
And this is where we have to balance scale with infrastructure, with controls because
When we think about the 85 % that don't sell and they go to market and a third party buyercomes and assesses it, they're assessing what are the operations of this business?
(14:25):
Although we value businesses on past financials, buyers are looking for the future.
They're buying the future.
What is this business going to bring me?
And if you know as the seller, as the owner, that your life is hectic and you're working18, 20 hours a day and the staff don't perform,
going to market is going to come out in due diligence because financially you might bethere, but if that financials is happening off the back of you being burnt out and working
(14:51):
all these hours, you could be missing two large commercial roles, which couldsignificantly drop your profits and therefore the value drops.
And that's why the valuations, and we talk about adjusted EBITDAs where both businessesare overvalued.
Even if you're not manipulating your EBITDA and you're doing it fairly and you're going tomarket with the current
(15:11):
position of the business, financials, if those financials are overstated because you don'thave the right infrastructure or the right investment in the business, then it's still an
incorrect valuation.
It's still overvalued because operationally, commercially, the business isn't worth, inreality, what you're showing it is on paper because the person buying it doesn't want the
hassle or doesn't want the strain of the life that you've got running the business.
(15:36):
So when we look at financial controls and we look at governance, what we're ultimatelysaying is we are changing the business so that business has a structure where as the
owner, you can relieve tasks to your staff and the staff actually performs.
And what a lot of people don't know is finance plays a key role in that because in acorporate company, the CFO would actually run sort of corporate government policies and
(15:59):
oversee that type of thing.
And the reason for that is most of these risks, most of these issues that happen hitsthe...
ends up hitting the financial performance of the business.
Because in the end, the biggest thing that will close the business is cash and obviouslylack of trade and low margins.
And all of those things should be overseen by your finance team because that's whoprovides the data in terms of your profit and loss, your management accounts and your cash
(16:21):
flow reports.
And that is why it fits nicely into a finance role.
But obviously, how do you get there?
So a lot of people will get to a certain level and just go, I'm going to hire a CFO.
Now, the reality is
you've got start asking what does, what value does that CFO bring at that stage?
Because a CFO is a strategic leadership team member that should sit on your board thatwill strategically steer the direction of your business.
(16:46):
But if you can't get any reports from your business because you don't have the rightinfrastructure, what benefit does the CFO bring?
I've seen so many businesses, hundreds of businesses that have recruited really expensiveCFOs.
And the truth of the matter is they still can't even see basic management accounts.
So it's like, what value?
So I'm not suggesting that a CFO can never bring any value to a business, but I do thinkin the SME world, we have to start being realistic about when does a CFO bring value at
(17:13):
what stage in the journey does it bring value?
And then underlying that is financials are all based off the fact of how well the businessis ran operationally.
So finance is a backend function that takes, which generally impacts from the operationalcycle right from the front end.
So this could be just things from, are the costing right in your project system?
(17:35):
Is your inventory managed right?
Do people book in stock on systems?
Do you have payment terms and supplies to pay them on time?
Do customers pay you?
Now all of these things end up getting reported in your management accounts, but if noneof those things are in place in the front end, how do you ever report them?
(17:56):
And then you have other operational things.
Project systems, people have project systems in place, nobody updates the projectstatuses.
So customers don't get invoiced.
Customers don't get invoiced, there's no age debt report, there's no cash that comes intothe business.
And I see businesses of sort of 10, 50 million where when we do these investigations, wefound hundreds of thousands of pounds not invoiced because nobody actually knew.
(18:23):
Because there is one thing somebody doing that process
But there's a second thing is somebody's checking the work of the doer.
So we call them doers and reviewers.
So if you raise sales invoices, great, but who checks when a sales invoice hasn't beenraised?
And how do you actually know a sales invoice hasn't been raised?
Now, this is where owners get out of control because when the business is smaller and itwas just them, they were in control of their invoicing.
(18:48):
You know, they invoice themselves, they could keep control of it.
Now the business is growing, there's lots of people involved in that process.
They can no longer keep control.
they're telling themselves they can keep control when they're doing it and they feel, I'mdoing it, so I'm doing it right.
But how are they doing it right?
Because whenever we go in and investigate these things, actually they're not, stillmissing things.
Now that doesn't mean they're bad at their job, it just means that the business has grownto a level of size where it now needs different management.
(19:13):
It needs a different type of reporting, it needs different types of systems, and itactually needs an infrastructure within the whole organization of how people behave and do
their tasks.
which is outside of KPI.
So there are KPIs, but KPIs are there to measure key statistics of a business that keepthat business trading.
(19:34):
Most people will only have four to six KPIs maximum.
outside of those KPIs, there's fundamental processes that also need reporting and data onthem to make sure that people are delivering because lots of processes make up one KPI.
So lots of people are focused on fancy dashboards and KPIs and sales reporting, which isgreat.
(19:54):
But underneath all of that, those KPIs are being delivered by a variety of tasks thatmultiple people are doing.
And if those people aren't doing it right, even when you report on the KPIs, the questionwould be, are you reporting on them right?
Because if let's just say your KPIs to never have stock for more than 30 days.
Well, if people have stock in the warehouse that they haven't received onto the system,your system might show you
(20:19):
I've only got 30 days of stock, but is it the truth?
Because have you got a load of stock somewhere sitting in a warehouse that's at riskbecause nobody's ever receipted it.
So this is why, this is what we talk about financial controls and governance.
So I'm really passionate about this topic because I know from working in big corporatesall the way, yeah, I've worked with small SMEs all the way through to big corporates.
(20:39):
So it is the thing that fundamentally changes the business infrastructure and it doeschange owner's life.
Because if you want,
to eventually sell your business or walk away from your business and know that you canhave a life without having to work in 18 hours a day.
It has to have an infrastructure where other people can take on those tasks, but not onlytake on the tasks where you feel confident as a person that those people can actually
(21:05):
deliver those tasks without you having to micromanage or stepping in fixing problems.
That is a big gap and that is where
I see these 85 % of businesses don't sell because they go to market with an expectation ofvalue because they've taken so much money from the business.
Yet a third party that wants to take the same amount of money from the business and payyou as the owner, that is impossible because there isn't enough margin in your business to
(21:34):
account for the investor and you.
And that usually means that business models need to be at least 10 % higher margins.
And they're typically traded that small level to account for all of the real costs thatyou need.
So you can run a business, make more money and not work in the business.
That is absolutely possible.
(21:54):
But that needs planning.
It needs investment and it needs a different mindset.
It needs not an owner-operator mindset.
It needs more of a strategic investor mindset.
And the owner has to be prepared to go on that journey.
to move from owner operator to sort of silent investor, which is effectively how thebusiness becomes an asset.
My leaving notes to all of this is how I started.
(22:18):
There's over 600,000 businesses that are gonna come to market over the next 10 years, allclosed by voluntary liquidation or sell to big P firms.
know, the word is P firms are gonna get a load of sales.
You know, they're gonna be in the firing line to buy these businesses because they're theones that are gonna have the cash.
to be able to cope with these businesses that aren't performing.
(22:39):
And I feel it's at real risk and we need to start transitioning our mindsets as owners ishow can we continue to keep our wealth and our business without us having to work 18, 20
hours a day?
Because it will benefit you because in the end you may actually think I don't need to sellyet because why would you sell something that's generating you money?
(23:02):
People tend to want to sell either because they're at an age where they just
want to retire and forget about it, or more often than not, they're just completelydeflated and exhausted and they just need out.
Well, if you're at that point and you're trying to sell, before you even go to market,you've got to think, well, if I'm feeling like this, why would someone want it?
Because it's not just going to suddenly change when somebody takes it, somebody's going tohave to make it change.
(23:26):
But that person can be you.
As the seller, you can change those things with the right help and the right guidance.
So if anybody wants to reach out for me,
I'm Judy Wilkinson, Profit Queen on LinkedIn and all of my contact details and mycompany's Wilkinson Accounting Solutions.
But I really want to thank everybody for all the support on the podcast.
(23:47):
It's gone amazing, better than I could ever have imagined.
I want to thank all the guests.
This is different for me, my first ever solo podcast.
More will be coming soon.
And if there's any topics that you want to cover, drop me a message either on YouTube orthe channels.
and I look forward to seeing you again soon.
So once again, thank you so much for taking the time to listen to our podcast.
(24:10):
I hope you found it useful.
If you think there's anyone else in your network that might benefit from our podcast, thenplease share it with them.
Either just click the link and send it to them or send it in a Facebook group or othersocial media channel.
Don't forget to subscribe so other podcasts come to you directly as and when we launchthem.
So I'm really looking forward to seeing you next time.
We've got some really exciting things coming up and we'll see you again soon.
Hi, I'm Julie Wilkinson and I'm a chartered management accountant and I'm excited to belaunching the Build and Exit podcast.
This podcast is for business owners and entrepreneurs who are looking to expand theirbusiness portfolio by acquisition or at some point in the future want to exit their
business.
We're going to bring real life stories and experiences of people who have grown byacquisition, who have exited their businesses and other areas of business such as funding
(00:28):
and cash flows.
So there'll be lots of opportunity to learn different areas of business and how you can inthe end transition your business from a lifestyle to an asset.
So look forward to seeing you soon.
Hi, and welcome to the Building an Exit podcast.
I'm Ginny Wilkerson and I'm your host.
I started the podcast at the back of the work I do in my company, Wilkerson AccountingSolutions, because I found there was a massive gap in the UK and across the world in terms
(00:52):
of exit planning and business owners and founders scaling to maximize generational wealth.
So this is my first ever solo podcast.
I've had quite a lot of people message about some topics that they wanted me to cover.
And I thought it's a good platform to share my experiences and why I'm trying to bring theeducation from the podcast and also put some key things, especially from an accounting and
(01:16):
finance perspective, that's critical for businesses who want to scale.
I don't know.
I've never really shared my background on the podcast.
So just a little bit about me.
I'm a chartered management accountant by trade.
I used to work in corporate businesses for about 20 years, running sort of multi-millioncompanies and managing large scale teams and mentoring.
(01:41):
And I decided to start my company because I saw that I feel the actual accounting servicesin the UK is relatively poor because
there was a gap in knowledge and skills in terms of what sort of a traditional accountingand bookkeeper does versus what you would see sort of a strategic finance partner doing to
actually scale businesses and help them on their track.
(02:03):
Now, I think there's a knowledge gap for entrepreneurs in the SME world when you'relooking especially around sort of the 3 million to 20 million mark in terms of knowing
what a finance team can deliver.
Unless people have come from a corporate background, I find entrepreneurs, you know,they're not used to hierarchy of structure.
And if you don't, only know what you know.
(02:24):
So I'm here to deliver the message of, you know, why a finance team and sort of governanceand controls is really crucial in that scaling and transitioning your business to an
asset.
So my mission is to help owners build generational wealth.
And when I talk about generational wealth, what I'm finding is
You know, I've been involved in over a hundred acquisitions now and I speak to hundreds offounders and business owners, either buying or selling.
(02:49):
And in the UK specifically, 75 to 85 % of businesses that go into market don't end upselling.
And there is a reason for that.
And those that do, the truth is at the minute is a buyer's market.
And we know that there's estimated over 600,000 businesses that's going to be looking toexit over the baby boomer generation over the next 10 years.
(03:09):
So obviously,
With everything that's also going on in the UK with sort of millionaires leaving and taxchanges, there's a big risk to the UK economy in terms of jobs going where founders are
sort of closing shop because they can't sell.
So if 85 % of businesses that go into market don't sell, the interesting concept is whenfounders are starting and scaling, I speak to business owners in all different sizes.
(03:34):
I often get, they often say, oh, that'll never be me.
I'll be okay yet.
If 85 % of businesses aren't selling in the end, they were those founders.
So there's a gap in knowledge and sort of expectation of where businesses can go.
Because when you start businesses and we have entrepreneurial people, they're in the midstof running their businesses.
But sometimes it's chasing the next sale and the infrastructure isn't getting set up inthe background.
(03:58):
So I wanted today's podcast is going to be around sort of financial controls.
finance teams and how it's such a crucial aspect to scaling your business to actuallycreate generational wealth.
And generational wealth to me means that your business can carry on past you because inthe end, we're only on this earth for so long.
(04:18):
No one knows how much time they've got.
And the question is, are you building a legacy or are you building a job?
If you're building a job, that's fine.
There's nothing wrong with that.
But in the end, a job stops and at some point you might want to retire.
And some people may go, well, I never want to retire.
But then we know that, you know, we don't always have a choice.
We have ill health.
And then at some point in life, you may come to the point where you can no longer run thatbusiness.
(04:40):
And then you have to decide, but what do I want that business to do?
So the first myth I want to take on is that actually, when we say exit in a business, exitin a business doesn't just mean a business owner has to sell their business.
It is obviously an end form.
And there's different ways that you can sell your business through to sort of generationsof family management, buyouts, employee trusts, or obviously to third party buyers.
(05:07):
But actually a lot of business owners just want their bit, want to have their freedom.
And if you want to have your freedom in a business, which means you can choose to go onholiday for, you know, maybe a month, two or three months at a time, then really you are.
part exit in your business.
Because if you're not away for more than a week or two week period, is an average holiday,because nothing really necessarily will critically fall down in those periods of time.
(05:32):
We're looking at if you're away for a longer period of time, will the business criticaltasks fall down and could that significantly impact the risk of the business?
And the truth is, out of the surveys that I've done, not many business owners, and we'relooking at this 85 % that don't sell.
These are the business owners where if they stepped away for three, forget the fact thatthey're selling, if they were five years earlier and they had said, I'm going to go and
(05:56):
step away from my business, if they can't step away from their business, they're fallingdown.
The truth is when they go to market, is somebody going to actually want that business,especially at the value that you want as the seller.
So this is like the fundamental problem is it doesn't have to be a full exit immediatelybecause what we're saying is
(06:17):
What you're doing is you're slowly transitioning your business and effectively it movesfrom a job over to an asset.
An asset is something that generates money.
So some people look at assets, things like crypto, property, gold, all of those areassets, but then in reality, so is your business.
Your business is just another form of asset that can generate income.
(06:38):
The difference is we have to build those businesses from the ground up.
unless we acquire, which is where acquisition comes in.
Because acquisitions is obviously a good route to acquire into something or to obviouslymassively grow a business operations quickly.
therefore, it's still an asset, it can still generate money, but it's not quite the sameas an independent asset.
(07:01):
That's just easier to buy and it runs.
You you have to sort of build those businesses.
And I don't believe in the experience I have with business and is that many people arethinking that far ahead.
You know, there's a lot of pushback where you can't forecast and plan that far ahead.
There's, there's circumstances out of my control.
The truth is, yes, you can't control the environment, but you can control how you dealwith and how prepared you are for situations.
(07:30):
And this is what we talk about control.
So controls is effectively risk mitigation.
What's your biggest risk and are you protected against it?
So we go back and look at some of the big things that have happened in the economy likeBrexit and COVID.
And people go, it's not my fault.
I didn't know it was going to happen.
(07:50):
No, but what's actually happened is forgetting the fact that COVID happened and maybe yourrevenue dropped.
If you had planned, what's my margin of safety?
So a margin of safety is effectively what's the lowest point that my business can copewithout any sales.
So forgetting COVID happened, if you had regularly looked at where's my margin of safety,what can my business cope with?
(08:14):
How long a cash would I have in the bank?
If these scenarios happened, the truth is when COVID came, you would have been prepared.
You may not have been able to stop it and perhaps it may have gone below the threshold ofwhat your margin of safety was, but you would have known.
So where this happened in the January when the COVID started,
(08:35):
Those that were prepared would have probably known in two or three weeks.
They would have known, I've planned for this.
This is my situation.
I've got to deal with it.
Those that didn't plan were just frantic.
my God, my business is going to go down.
I don't know what money I've got.
haven't got, I'm just not going to pay my taxes.
And those that didn't prepare are typically the people that went and got the COVID andbailout loans and are now in financial trouble because of that, because the people that
(08:59):
were prepared knew what they could take, took what they took, but planned and managed thatcash.
people that wasn't prepared just took the money, spent it all, not necessarily onthemselves, but on the business, but they didn't really plan and they perhaps spent it on
things that they shouldn't have spent it on and they didn't really plan.
And then they got into financial difficulty later down the line.
So planning is a real part of risk, risk mitigation.
(09:25):
And I believe not everything's in our control, but everything can be thought about.
And that would be part of your risk mitigation strategy.
So your risk mitigation strategy is because you have got risk that your turnover can dropwithout something like COVID.
We see business demands change.
Now we're seeing the current Trump put in the tariffs in the US.
(09:48):
That could change your business model.
That could have as severe impact on our business as essentially COVID coming in andhitting.
Maybe not in sales drop, but in profit drops because of the costs.
you know, there's always going to be external influences that are impacted us and we haveto choose as entrepreneurs who are we going to be?
Are we going to be those people that plan or are we going to be those people that justfirefight on what's happening in the economy and letting that impact how we feel?
(10:17):
So then we look at financial control.
So risk mitigation, what's our biggest risk and how do we mitigate it?
And then we look at how does my business trade to mitigate those risks?
So we have
It is hard for businesses because we have ethical responsibilities and we have legalresponsibilities.
There are certain legal responsibilities in different industries.
(10:37):
Obviously different industries are more heavily legalized than others, which is normal.
But obviously we all have things in our different industries in our life where we have,you know, in our business where we have certain legal obligations.
And sometimes that costs money, that costs money and you don't necessarily see the valueat the top line in terms of the sales.
So that would be something like my business has reached the audit threshold.
(11:00):
I now need to bring on an auditor to do my accounts.
As business owners, I know because I see and we speak to them, they don't see any value inthat.
They're like, but why do I have to pay to have my accounts audited?
I've had my accounts for years.
The reason is you've grown to a level and you're now legal.
You've now got a legal obligation to stakeholders, not just a moral obligation, not justan ethical responsibility anymore.
(11:20):
And you have to, you know, you're at a size of a business where you've got to be seen toactually let your managing things.
correctly.
And that's an area where people get into big financial difficult, well not just financialdifficult, but they can get into issues when they start going into those audit thresholds,
because that's when people start and third parties start to independently review how isyour business trading financially, but also against sort of legal obligations and what are
(11:47):
you reporting to stakeholders and things like that.
And then there's ethical responsibilities.
It's just how do you want to trade ethically?
Which suppliers are you using?
Are you paying staff fairly?
There's lots of things now in the world where we have a social corporate responsibility.
And I know business owners are really passionate about looking after staff and customers.
So that's something that we're looking at.
(12:08):
So we have these responsibilities and then we obviously have to manage day-to-day trade,business growth, employees.
And then as owners, we want to maximise our own wealth, you know, that we don't startbusinesses for nothing.
We're investors, we're investing our time, we're investing our cash and we want to buildsomething off the back of that.
Whether you're acquiring or whether you're organically growing, you're doing a similarinvestment.
(12:31):
You're just doing it in different ways.
And you want something at the end of that.
And in the end, that's really hard to get.
Because what I see happens, and this is where we come back to the 85 % of that don't sell,is businesses chasing growth.
So it's sales, it's sales, it's sales, they employ people, they bring in a couple ofcontractors and things are going really well.
(12:53):
They're bringing on really good customers and then bang, the owner starts to feelcompletely, they were already busy and now things are completely out of control.
The reason it's got out of control is because the sales have come in.
They've had brought employees in to do the doing and when there was only one employee, itwas easy to manage that scale to maybe 10, 12, 15.
(13:14):
possibly even more, and actually no infrastructure has been put in for those employees.
So sometimes there's not even job specs and sometimes there's not objectives, even basicthings like that.
Sometimes they are in place, but even when they are in place, are they actually deliveringor are people being moved into roles because other areas of the business isn't set up and
(13:36):
things are just happening and everybody's firefighting.
That's the typical situation.
So the owner is now completely out of control.
or feels out of control because now they're still doing everything they were doing, whichwas meant to be released from the staff that they've brought in.
But the staff don't do what they're meant to do.
It doesn't necessarily mean the staff are all bad at their jobs, but they just have nocontrol.
(13:57):
They have no processes to follow.
Now the owners got all these people to manage and they've got to deliver and they've gothigher customer demands because they've probably got bigger customers and more of them.
And this is where we have to balance scale with infrastructure, with controls because
When we think about the 85 % that don't sell and they go to market and a third party buyercomes and assesses it, they're assessing what are the operations of this business?
(14:25):
Although we value businesses on past financials, buyers are looking for the future.
They're buying the future.
What is this business going to bring me?
And if you know as the seller, as the owner, that your life is hectic and you're working18, 20 hours a day and the staff don't perform,
going to market is going to come out in due diligence because financially you might bethere, but if that financials is happening off the back of you being burnt out and working
(14:51):
all these hours, you could be missing two large commercial roles, which couldsignificantly drop your profits and therefore the value drops.
And that's why the valuations, and we talk about adjusted EBITDAs where both businessesare overvalued.
Even if you're not manipulating your EBITDA and you're doing it fairly and you're going tomarket with the current
(15:11):
position of the business, financials, if those financials are overstated because you don'thave the right infrastructure or the right investment in the business, then it's still an
incorrect valuation.
It's still overvalued because operationally, commercially, the business isn't worth, inreality, what you're showing it is on paper because the person buying it doesn't want the
hassle or doesn't want the strain of the life that you've got running the business.
(15:36):
So when we look at financial controls and we look at governance, what we're ultimatelysaying is we are changing the business so that business has a structure where as the
owner, you can relieve tasks to your staff and the staff actually performs.
And what a lot of people don't know is finance plays a key role in that because in acorporate company, the CFO would actually run sort of corporate government policies and
(15:59):
oversee that type of thing.
And the reason for that is most of these risks, most of these issues that happen hitsthe...
ends up hitting the financial performance of the business.
Because in the end, the biggest thing that will close the business is cash and obviouslylack of trade and low margins.
And all of those things should be overseen by your finance team because that's whoprovides the data in terms of your profit and loss, your management accounts and your cash
(16:21):
flow reports.
And that is why it fits nicely into a finance role.
But obviously, how do you get there?
So a lot of people will get to a certain level and just go, I'm going to hire a CFO.
Now, the reality is
you've got start asking what does, what value does that CFO bring at that stage?
Because a CFO is a strategic leadership team member that should sit on your board thatwill strategically steer the direction of your business.
(16:46):
But if you can't get any reports from your business because you don't have the rightinfrastructure, what benefit does the CFO bring?
I've seen so many businesses, hundreds of businesses that have recruited really expensiveCFOs.
And the truth of the matter is they still can't even see basic management accounts.
So it's like, what value?
So I'm not suggesting that a CFO can never bring any value to a business, but I do thinkin the SME world, we have to start being realistic about when does a CFO bring value at
(17:13):
what stage in the journey does it bring value?
And then underlying that is financials are all based off the fact of how well the businessis ran operationally.
So finance is a backend function that takes, which generally impacts from the operationalcycle right from the front end.
So this could be just things from, are the costing right in your project system?
(17:35):
Is your inventory managed right?
Do people book in stock on systems?
Do you have payment terms and supplies to pay them on time?
Do customers pay you?
Now all of these things end up getting reported in your management accounts, but if noneof those things are in place in the front end, how do you ever report them?
(17:56):
And then you have other operational things.
Project systems, people have project systems in place, nobody updates the projectstatuses.
So customers don't get invoiced.
Customers don't get invoiced, there's no age debt report, there's no cash that comes intothe business.
And I see businesses of sort of 10, 50 million where when we do these investigations, wefound hundreds of thousands of pounds not invoiced because nobody actually knew.
(18:23):
Because there is one thing somebody doing that process
But there's a second thing is somebody's checking the work of the doer.
So we call them doers and reviewers.
So if you raise sales invoices, great, but who checks when a sales invoice hasn't beenraised?
And how do you actually know a sales invoice hasn't been raised?
Now, this is where owners get out of control because when the business is smaller and itwas just them, they were in control of their invoicing.
(18:48):
You know, they invoice themselves, they could keep control of it.
Now the business is growing, there's lots of people involved in that process.
They can no longer keep control.
they're telling themselves they can keep control when they're doing it and they feel, I'mdoing it, so I'm doing it right.
But how are they doing it right?
Because whenever we go in and investigate these things, actually they're not, stillmissing things.
Now that doesn't mean they're bad at their job, it just means that the business has grownto a level of size where it now needs different management.
(19:13):
It needs a different type of reporting, it needs different types of systems, and itactually needs an infrastructure within the whole organization of how people behave and do
their tasks.
which is outside of KPI.
So there are KPIs, but KPIs are there to measure key statistics of a business that keepthat business trading.
(19:34):
Most people will only have four to six KPIs maximum.
outside of those KPIs, there's fundamental processes that also need reporting and data onthem to make sure that people are delivering because lots of processes make up one KPI.
So lots of people are focused on fancy dashboards and KPIs and sales reporting, which isgreat.
(19:54):
But underneath all of that, those KPIs are being delivered by a variety of tasks thatmultiple people are doing.
And if those people aren't doing it right, even when you report on the KPIs, the questionwould be, are you reporting on them right?
Because if let's just say your KPIs to never have stock for more than 30 days.
Well, if people have stock in the warehouse that they haven't received onto the system,your system might show you
(20:19):
I've only got 30 days of stock, but is it the truth?
Because have you got a load of stock somewhere sitting in a warehouse that's at riskbecause nobody's ever receipted it.
So this is why, this is what we talk about financial controls and governance.
So I'm really passionate about this topic because I know from working in big corporatesall the way, yeah, I've worked with small SMEs all the way through to big corporates.
(20:39):
So it is the thing that fundamentally changes the business infrastructure and it doeschange owner's life.
Because if you want,
to eventually sell your business or walk away from your business and know that you canhave a life without having to work in 18 hours a day.
It has to have an infrastructure where other people can take on those tasks, but not onlytake on the tasks where you feel confident as a person that those people can actually
(21:05):
deliver those tasks without you having to micromanage or stepping in fixing problems.
That is a big gap and that is where
I see these 85 % of businesses don't sell because they go to market with an expectation ofvalue because they've taken so much money from the business.
Yet a third party that wants to take the same amount of money from the business and payyou as the owner, that is impossible because there isn't enough margin in your business to
(21:34):
account for the investor and you.
And that usually means that business models need to be at least 10 % higher margins.
And they're typically traded that small level to account for all of the real costs thatyou need.
So you can run a business, make more money and not work in the business.
That is absolutely possible.
(21:54):
But that needs planning.
It needs investment and it needs a different mindset.
It needs not an owner-operator mindset.
It needs more of a strategic investor mindset.
And the owner has to be prepared to go on that journey.
to move from owner operator to sort of silent investor, which is effectively how thebusiness becomes an asset.
My leaving notes to all of this is how I started.
(22:18):
There's over 600,000 businesses that are gonna come to market over the next 10 years, allclosed by voluntary liquidation or sell to big P firms.
know, the word is P firms are gonna get a load of sales.
You know, they're gonna be in the firing line to buy these businesses because they're theones that are gonna have the cash.
to be able to cope with these businesses that aren't performing.
(22:39):
And I feel it's at real risk and we need to start transitioning our mindsets as owners ishow can we continue to keep our wealth and our business without us having to work 18, 20
hours a day?
Because it will benefit you because in the end you may actually think I don't need to sellyet because why would you sell something that's generating you money?
(23:02):
People tend to want to sell either because they're at an age where they just
want to retire and forget about it, or more often than not, they're just completelydeflated and exhausted and they just need out.
Well, if you're at that point and you're trying to sell, before you even go to market,you've got to think, well, if I'm feeling like this, why would someone want it?
Because it's not just going to suddenly change when somebody takes it, somebody's going tohave to make it change.
(23:26):
But that person can be you.
As the seller, you can change those things with the right help and the right guidance.
So if anybody wants to reach out for me,
I'm Judy Wilkinson, Profit Queen on LinkedIn and all of my contact details and mycompany's Wilkinson Accounting Solutions.
But I really want to thank everybody for all the support on the podcast.
(23:47):
It's gone amazing, better than I could ever have imagined.
I want to thank all the guests.
This is different for me, my first ever solo podcast.
More will be coming soon.
And if there's any topics that you want to cover, drop me a message either on YouTube orthe channels.
and I look forward to seeing you again soon.
So once again, thank you so much for taking the time to listen to our podcast.
(24:10):
I hope you found it useful.
If you think there's anyone else in your network that might benefit from our podcast, thenplease share it with them.
Either just click the link and send it to them or send it in a Facebook group or othersocial media channel.
Don't forget to subscribe so other podcasts come to you directly as and when we launchthem.
So I'm really looking forward to seeing you next time.
We've got some really exciting things coming up and we'll see you again soon.
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