During the past 15 years , I have had great opportunity to meet thousands of business owners. After all this time, it’s very interesting to reflect on the common characteristics of the owners of businesses that are most successful. The principles and values practiced every day by these individuals are almost exactly the same as many of the principles used in valuing a business. So what are these principles and values that have created this success and added value to their operations?
1. Maintain a competitive edge
Keep an eye on your competition and make sure that you are one step ahead. This might mean implementing systems that can reduce costs and the price you have to charge customers, while still allowing you to maintain your margins. Or perhaps a new product line or offering that creates additional value for the customer. Always strive to create more value.
2. Ensure your labour force is stable
One of the first things a buyer asks is ‘what is the makeup of the staff and how long have they been employed with the business?’ Let’s face it, your staff is the backbone of your business. Are they being remunerated fairly? How is the work environment?
Have you ever asked them if they are happy? Bottom line is that high staff turnover will reduce the value of your Business.
3. What is the makeup of your customer base?
If a substantial portion of your revenue depends on a small number of customers, it’s time to make some changes. A potential buyer will pay more for a business if losing a customer doesn’t mean having to make significant operational and staffing changes.
4. Go golfing!
This might sound somewhat cliché, but your knowledge and relationships with customers and suppliers should be decentralized to your staff. Learn to let go. Empower your team and take yourself out of the picture as much as possible. A potential buyer wants to know that the business is not ‘you’. Surprisingly, I have seen businesses trade at almost a full year’s cash flow more with decentralized operations.
5. Watch your profitability trend
Not long ago I worked on a logistics company where their gross margin had dropped quite significantly due to increased fuel costs. The business was about to implement a price increase. So does this mean that customers will be lost or margins will get better? What it really means is uncertainty. Uncertainty means a decrease in value. Consistent profitability or consistent growing profitability will always add value to your business.
These are just a few basic things that we discuss at Alberta Business Exchange on a daily basis. I often meet with families years before they are ready to sell so they can maximize their value at the time of the ultimate sale.
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