Are you a business owner who is looking to sell?
If so, you might be under the impression that your business is worth a lot of money. After all, you’ve poured your blood, sweat, and tears into building it up. However, when it comes time to sell, you might be in for a rude awakening.
In this blog post, we will discuss why your business might not be as valuable as you think it is. We will also provide tips on how to increase your business’s value.
- You’re too involved in the day to day– If you can’t step away from your business for 4 weeks without your whole operation continuing to run without interruption, then you have a job. Unfortunately, most business buyers don’t want jobs. They’re seeking to buy your cashflow. Pro Tip: Create processes for every function in your business. Develop management KPIs that define the outcome expected from each process and reporting structures for managing delivery against those KPIs. Next, hire a general manager to oversee the operation and delivery against those KPIs.
- No predictable customer acquisition – Your company doesn’t have a proven method for attracting and closing the volume or quality of new clients you need to grow in a consistent or predictable manner. Pro Tip: Work with a marketing consultant to identify your ideal customer segments, then, develop an inbound lead generation and sales system that targets, qualifies, and closes them. Create KPIs and benchmarks to measure how well you’re doing at each step in this process.
- High Customer Concentration – If you have a single customer who makes up more than 15% of revenue or profit, you have a serious risk to your business. Pro Tip: Diversify your customer base by developing new segments and targeting them with tailored marketing and sales programs.
- You’re lacking a roadmap for growth – When potential buyers ask about your growth plans, you don’t have a clear answer. Your business might be growing, but if you can’t articulate how you’ll continue that momentum, then it will be difficult to sell. Pro Tip: Define what success looks like for your business in 3-5 years into the future and the 3-5 activities you’ll execute on to achieve those outcomes.
- Insufficient Transition Plan: When you’ve got an aging leadership team that will in all likelihood retire or transition in the next 3-5 years or a problem with staff leaving the business every 2-3 years, this can be a red flag for buyers. Pro Tip: Have a plan for training replacement staff for people 2-3 years from retirement to ensure a smooth transition. Look at your onboarding and training processes. Are new hires getting the support they need to be successful in their roles? Talk with your staff individually. Ask why they’re frustrated and how you can improve their work environment.
- Questionable Goodwill: Goodwill is the value of your business that is not attributable to its physical assets or earnings power. It’s the “secret sauce” that makes your business special. If you’ve been in business for a long time, have a great reputation, and have built up a loyal customer base, then you might have some goodwill. If you don’t know or can’t articulate what your secret sauce is in a way that’s unique and different from others, this can significantly impact your business value. Pro Tip: Talk to 5-10 of your largest and most profitable customers. Ask them why they buy from you vs the competition. Make sure to ask probing questions to dive deeper into their answers. Do the same activity with staff from across your business. For best results, call or speak with them 1:1 vs. requesting a written answer over email or online survey.
- Low customer retention – If you’re losing customers at an alarming rate or they don’t continuously buy or buy more from you, it may be difficult to get the highest valuation for your business. Pro Tip: Talk to your customers. Ask why they aren’t repurchasing or buying more from you. Find out what you should be doing better or differently to change this. Next, review your customer service processes and make sure they are aligned with the needs of your target market. Lastly, evaluate your pricing. Make sure you’re delivering enough value to support the cost of your products or services in the eyes of your customers.
In conclusion, there are many reasons that your business may not be worth as much as you think. The 7 reasons presented above are the most common seen by buyers considering a purchase.
If you’re experiencing any of these problems in your business today and would like to find ways to solve these problems and sell your business for more and on your terms, we’d invite you to setup a free, completely confidential clarity call.