when considering the sale of a business, one of the paramount questions is how much someone will be willing to pay for it. In other words, “How much money can I get?” What many sellers forget is that price is not a stand-alone issue.
The price received for a business has to be supported by the business itself. Price is not an arbitrary figure, although many sellers think that it is. Price and value may be different numbers, but price has to be substantiated by value. Buyers may be willing to pay a higher price than the value itself might indicate due to a specific location, popularity or reputation of the business, or some other unique factor or factors. There is no doubt, however, that the higher the value, the higher the price.
Building value, then, is a very important ingredient to increasing the eventual selling price of a business. It is easy to say that a business owner should be building value on an on-going basis and especially during the years just prior to attempting to sell it. Most owners are so busy running their business, that preparing to sell it is the farthest thing from their minds. However, there are some things that can be done prior to putting it on the market. Here are a few ideas to consider:
- Is the price of the product or service set too low? Owners, too often, have continued with the same price for years without revisiting the pricing structure. Other owners may have reduced prices some time back in an effort to boost sales, and never increased them. Most small businesses do not compete on price alone. Their competitive edge may be quality of service, unique products or services, location, response time, post-sale or service response, or any of a number of reasons people patronize a particular business.
- Despite all of the above, elevating the quality or amount of customer service may not only increase business and support higher prices, but also encourage customers to pay on a more prompt basis, increasing cash flow.
- Owners should review what they pay for inventory, supplies, utilities, insurance, technology, and any other expense to see if they are getting the lowest price possible, taking advantage of all of the discounts available, etc. It may pay to check prices of other suppliers and vendors. Every savings increases profits, and higher profits mean a higher price for the business.
- In some cases, inventory levels may be higher than necessary. Retail operations want their stores to look “busy,” but they don’t need a basement or warehouse full of inventory. In today’s fast-moving economy, inventory can be supplied almost on demand, in most cases. This should be balanced by still taking advantage of special pricing on certain items or stock-piling hard-to-get inventory.
- Many services, especially in today’s environment of the self-employed, can be outsourced. Replacing workers is not pleasant and should only be done if substantial savings can be realized, but outsourcing is worth investigating.
- Now may be the time to get rid of any disgruntled employees. Happy and contented employees make for a profitable business – and it is evident to anyone looking at the business.
There are certainly other areas that can be improved or, at least, revisited. Although profits are important, there is an old expression that “cash is king.” This is especially true in small business. Solid cash flow is a great value-adder.