Buyers buy earnings! They look at and admire shop decor, operational functionality, great customer service, and a unique marketing plan, but they buy earnings! Businesses are valued by a multiple of earnings so it makes sense to maximize your earnings, and multiply your selling price.
So you are ready to sell your business and you need to increase your earnings? Here are some quick suggestions that should be implemented now to get your business ready to sell next year.
- Quit paying for your personal items out of the cash drawer, or hiding them in “miscellaneous”. Instead, take personal draws from the business (write yourself a check) and document it under “other expenses”. Every sales dollar that does not show up on the bottom line is a multiple not showing up on your selling price. For example, say you take money personally out of the cash drawer over the course of a year that results in your earnings being $5,000 less for that year, you just lost money on the sale of your business. If your business will sell for 3x earnings, you will miss out on $15,000 at the sale.
- Don’t take out loans on equipment or inventory if you plan on selling within the next year or two. This is a double whammy on your selling price. you’ll be decreasing earnings because of the payments made to the loan. And you will own equipment that is decreasing in actual value (buyers also look at that).
- Don’t cut out effective marketing expenses. You may think that reducing this expense will result in a better bottom line, and it will for a short period of time. But an effective marketing plan will result in greater sales and better profits. So don’t short sell the marketing effort.
- DO cut out ineffective marketing expenses. They are simply a drain on your bottom line.
- Do scrutinize your payroll and labor hours. Too many labor hours at too high of a payroll will kill your bottom line and your selling price along with it. Don’t indiscriminately cut labor, just make sure its needed and effective.
- Keep your lease as low as possible. A lease that is too high will cripple your business and the prospects of selling your business at a good price. A lease rate of 5% to 10% of sales should be good in most retail settings. Above that and you need to make some changes.
- Do stay motivated and active in your business! Remaining fully engaged is oftentimes difficult after you have made the decision to sell. But it is an essential component of making the sale at a good price. Your staff will sense your change in enthusiasm, your customers will sense your decrease in energy, and your business will sag along with the selling price.
Just like selling a house where you paint some walls, fix leaky faucets and repair some structures, selling your business is a process of fixing the leaks to your earnings.
Increase your earnings, Increase your selling price.