Most business owners who have grown their business for years are confident it will sell for top dollar and enable them to retire comfortably after all their hard work and sacrifice. They don’t realize that some of the decisions they’ve made in running their company may negatively impact the real value of their business.
Three common mistakes include:
Focusing on the wrong thing. Many owners of small businesses operate their company to minimize income tax. In an effort to reduce the amount of taxes paid, the owner takes as much money as possible out of the business to fund his family’s lifestyle and minimize his tax burden. Instead of siphoning funds from the business, the business should be treated like an investment and strategies implemented to actually increase its value.
Ignoring Margins. When the profit margin is ignored, the value of a business decreases. Profitability and company value is reduced when companies ignore margins to keep gross revenues high. When this happens, the company position in the marketplace weakens. Needless to say, this is not appealing to a buyer.
This tip from Jane Johnson, author of an article published by BTA, may be helpful here: “Recurring revenue is guaranteed revenue, at least for some time, which does not require the same level of sales and owner effort as one-time revenue. This revenue often has much higher margins and is always highly coveted by buyers. Studies show that businesses with recurring revenue sell at much higher multiples than those that don’t.”
Delaying Staffing Decisions. One of the biggest mistakes owners make is procrastinating when staff needs to be cut. When profits are down or the sales pipeline dries up, owners must act quickly to cut expenses; that sometimes means making uncomfortable staffing decisions.