Happy New Year! Our theme this month is about how business owners can increase the value of their businesses in 2012. We have two articles that address that topic, and at our January 18th webinar we'll discuss and demonstrate the Corelytics financial dashboard for business owners and senior managers to help monitor the financial health of their business and improve their management processes. It's a great way to start a new year, and highly recommended for IT and other technical service companies that are thinking of selling their business in the next 1-3 years or thinking of buying other businesses to accelerate their growth. Sincerely,
 Bob Dale & John Austin
Austin Dale Group
512-327-0427 |
Building the Value of a Business
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. While price and value may be different numbers, 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 the business. But the reality is that most owners are so busy running their business, that preparing to sell it is the farthest thing from their minds. There are some relatively simple things that can be done prior to putting a business on the market that may increase the value. Here are a few ideas to consider: - Is the price of the product or service set too low or too high? Owners often have continued with the same price for years without revisiting the pricing structure. For some owners, prices may need to be reduced to compete with new competition or lowered prices by the competition, thus increasing volume of sales. 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 number of reasons people patronize a particular business.
- How is customer service? 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.
- Where can the business save? 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.
- How is inventory? 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, most inventory can be supplied on demand. This should be balanced by still taking advantage of special pricing on certain items or stockpiling hard-to-get inventory.
There are certainly other areas that can be improved. Although profits are important, the old expression that "cash is king" is especially true in small business - solid cash flow adds value more than just about anything. |
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Staffing Decisions
One other area that has the potential to affect the value of a business is the staffing of the business. Business owners thinking about selling may want to consider two different options.
1. Outsourcing
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.
When evaluating the potential savings, a business owner will want to compare the total costs related to the employee (salary, benefits, bonuses, etc.) to the total costs related to outsourcing. A business owner will also want to consider how the change could affect customer service and the morale and productivity of the other employees.
2. Removing Negativity
Now may be the time to get rid of any disgruntled employees. Negative employees hurt a business in several ways. Their attitudes can create a sour environment for their co-workers; their criticisms and complaints can rub off on their coworkers; and their demeanor can leave a negative impression on the customers of the business.
Happy and contented employees make for a profitable business - and it is evident to anyone looking at the business. |
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January 18th Webinar
"Using a Financial Dashboard to Increase Performance and Value"
Are you resolved to improve your business performance in 2012? Then this is a great time put a financial dashboard in your toolkit and start optimizing your business. We'll demonstrate how this simple tool can give you a clearer view of your company's past and projected performance. It also helps you to set goals and monitor your progress, compare your results to industry benchmarks, and make better decisions. Highly recommended for owners of IT and technical service companies who are thinking of selling their business in the next 1-3 years or thinking of acquiring other companies to accelerate their growth.
Date: January 18, 2012 (Wed.)
Time: 11 AM - 12 PM Central
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Staying power
How to retain key employees during the M&A process (part 3 in a series)
Nothing can turn a sweet M&A deal sour faster than a key employee leaving the company before the transaction is final. This kind of loss can reduce a company's selling price, hinder integration plans, turn a star executive into a formidable competitor and even shut down a deal altogether. But bonus plans and other incentives can motivate key employees to stay and help reduce the odds that this common M&A mishap will happen to you.
Gain-sharing - Companies wanting to jumpstart synergies following a merger might consider this bonus program in which individual employees or teams are rewarded for determining and implementing cost-savings plans. Gain-sharing bonuses can include profit-sharing and restricted stock plans - all of which tie compensation to the company's growth and profits.
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Software Continues to Lead IT Investment
Since the beginning of 2010, private equity investors have invested in 331 companies in the Information Technology industry. Software continues to be the leading sector for IT investment, accounting for 84% of the completed deals in Q3. The sector also got off to a strong start for Q4, being responsible for two-thirds of the IT deals closed through October.
Source: Pitchbook Data |
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