Ready for a sob story? Here goes: as a business broker, I have the unenviable task of breaking bad news to my small business owner clients, namely that the company they’ve worked so hard on (and in) isn’t worth as much as they had hoped. Boo hoo for me, right? I agree that it’s gotta be a hell of a lot tougher to be the one to amputate someone’s leg than to deliver a disappointing report stating an opinion of the value of their business, but empathize for a moment if you will. These folks are typically of retirement age but not quite of comfortable retirement profile, with many foolishly hopeful of making up for a gaping shortfall in their IRAs through the sale of the business. So while I’m not coming at them with a chainsaw or a knife, it’s still a jarring experience to be told the reality of the likely lower-than-expected value of what they’ve worked so hard to build.
To avoid this malaise, folks should do what they can far in advance of the sale of the business to boost its value. One big topic is selling, a role most business owners don’t leap out of bed to play. Let’s face it, it’s a rare soul who springs into action in the early morning excited to face that day’s dose of rejection. But let’s talk priorities, shall we? Which is more important for our business owner friend – to avoid the disappointment of hearing “no” from some goofy sales prospect or running the risk of delaying retirement for years? An owner who wants to eventually sell the business is wise to work on proactively selling his or her goods every day. Those who don’t do this run the risk of saying they coulda/woulda/shoulda boosted their profitable revenue while they had the time and energy to do so… and then miss the opportunity to enjoy their retirement while healthy.
So what’s an owner to do? A few things. First off, accept that you’re a salesperson. No, it doesn’t mean you have to act like Ned Ryerson from “Groundhog Day,” chasing Bill Murray’s weatherman character up and down the block like a weasel desperate to make that month’s quota. What it does mean is that you may want to have a sales metric by which you measure the success of any given day, week, and/or month. Did you book an appointment for a new opportunity? Did you contact five latent clients with an unexpected thank you for past orders? Perhaps you did something nice for someone knowing that a referral for you could result at any moment? As we all know, it’s the little things we do that tend to add up to a lot of business.
All that said, be sure it’s not just you doing these healthy selling behaviors. You’ll benefit by having your whole staff understand that there are sales opportunities all around if they have alertness to that fact. Your office manager can ask a caller if there’s any other help needed; your service tech can keep an eye out for cross-selling opportunities; your driver can ask for referrals to neighbors who could very well be new customers. And naturally, it’s ideal if you actually build a day-to-day sales staff, as hard as that can be to execute. Business buyers are keen to understand how likely the sales effort will survive your sale of and transition out of the business, so having a productive sales team goes a long way toward allaying concerns that you are the business.
Another important factor is to heed Mom’s advice about not putting too many eggs in one basket. One drag on business value occurs when the company is beholden to one or two major accounts. If you step outside your day-to-day role and think like the potential buyer of your own business, strongly consider the risk profile of the customer mix. If any one account represents more than 20 – 25% of the revenue pie, it’s likely to hurt the perceived value of the business. Ideally, no one client will make up more than 10% of the mix; if this isn’t your reality it may be time to set a goal to capture enough new business in the coming months to improve the look and feel of your revenue stream.
Sticky, dependable top-line revenues are of course only one factor for a business that will likely be acquired. Other factors are historical profits; the supplier mix; the state of the economy in markets served; the management team and its likelihood to stay on post-transaction; and competition, among other major factors. But if there is but one thing you can do today, try a positive change you can make to enhance revenue, with an eye on always trending upward. You – and your eventual buyer of the business – will be glad you did.