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A more enjoyable business to own and a more valuable business to sell
You may be planning to sell your business in the next 2-5 years or you may just want to decrease risks and work on building a more sustainable, more enjoyable business to own and operate.
A business that is built to sell is a business that is built to own
Either way these three strategies will add value and profit to your business.
What would happen to your business if you lost your biggest client?
Would it cause just a bump in the road or would it be like a bridge falling on a major highway?
If losing your biggest client would cause a major disruption to revenue it is time to look at expanding your client base. There is nothing wrong with having large clients, and we like those big checks. You work hard to keep those big accounts happy and coming back and they have been with you for years, and that is great. But if the biggest client, or the biggest 2-3 clients count for a large percentage of sales you might want to mitigate the risk by diversifying your client base.
The higher percentage of sales concentrated in one client the higher the risk. If your biggest client is responsible for more than 10% or 20% of your sales losing them could be a minor to major disaster.
Case Study:
I once worked with a software company providing a turn key Certified Testing service to a large training organization. They worked with the students directly, supplied the tests, graded the tests, provided results and communicated with the students for any technical issues that would occur. The contract had been renewed each year for many years….until it wasn’t. The income from this one client was solely responsible for funding a major multiyear initiative.
The disruption was so great that more than 50% of the employees were let go, the initiative was scaled back and delayed. It took years for the company to recover and today it looks vastly different than it did before.
The simple, though perhaps not easy, way to mitigate this risk is by developing more clients. How do you do this? My guess is you know how to expand your client base. What needs to be done is to focus on expanding your client base setting it as a priority business objective.
Experience is a great teacher, learning from others is often quicker and cheaper. Chances are you have learned by both methods in your business. It is also probable that you are not doing things today the way you did when first starting your company. I would even go so far as to hypothesize that you see today other entrepreneurs making the same type of mistakes you made early in your business.
Over the years I’ve written two best practice training manuals, developed a training program and written one employee manual. All because I saw new employees and new sales people make the same mistakes over and over. The time invested in the creation of those documents was paid back to me many times over.
One of the advantages, and reason for high startup fees, that franchises have in attracting entrepreneurs is they have “A way of doing things”. Purchasers of a McDonald’s franchise must go to Hamburger University. A new franchise owner for Cold Stone must go to the corporate headquarters and spend about two weeks in a corporate store.
Start by documenting the basics. As the business owner the basics may seem obvious, but to a new employee will be new information.
Would it surprise you to know that even current employees may not know what some of the most basic procedures are? If you are feeling courageous try this: Ask “What do you do when…” or “What would you do if _____ happened?”
A few examples of what you might want to document:
Weather you document processes and procedures for the purpose of training new hires, opening new locations or to increase the value of your business the time invested will come back to you in multiples.
If your objective is to sell your business you will certainly gain another check on the positive side in the eyes of a buyer. All things being equal businesses with documented processes and procedures will be easier to own and receive higher purchase offers than businesses with out documented processes and procedures.
Would your business survive without you? Can you take a three week vacation and turn off your cell phone and email?
If not, you may have a job and not a business. Whether you are planning on selling your business or transiting to the next generation if your business is dependent on you it is going to be disruptive when you are no longer a part of the business.
One of the aspects business buyers are looking for is business stability. Imagine buying a business that is dependent upon the current owner’s presence. This will of course be a considerable depreciation in the price a buyer is willing to pay.
On the flip side, a business that is not dependent upon the owner for day to day or even month to month operations is much more valuable. Changing the needle on this one indicator could have a very significant effect on lifestyle and the market value of your business.
It is possible to move the needle and add significant market value to your business. These three value increasing strategies are not complex to implement. The key to increasing the value of your business is awareness that it can be done, planning and working the strategy, and focusing on the objectives to increase value over time.
Next time I’ll tell you how I lost $75,000 when I exited my language school simply because I didn’t know……
To Your Success,
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