New Year’s Resolutions to Improve Your Business
The start of a new year is often a time when people think about creating new habits to improve their position in life. For owners of privately held businesses, these New Year’s Resolutions often include working on the business to improve its profitability, and value.
Below are some thoughts to assist you in developing your own business resolutions to increase the value of your business in 2019:
This Year I’m Going to Address Customer Concentration
There seems to be some differing opinions on exactly where customer concentration begins to be a problem for most businesses. The driver behind this issue is the risk of losing a significant portion of your income should you happen to lose a customer or group of customers. If your top customer accounts for 10% or more of your gross revenue, then you may be operating with a significant amount of risk. Obviously, it may not feel very exciting to reduce the amount of business you take from a large client, but you can always focus on growing your overall number of clients and growing the amount of business you receive from your smaller customers. If you are planning to sell your business in the next few years, this is an especially important aspect of your business to work on. Buyers and lenders are often wary of businesses where the possibility of losing the top few accounts could be catastrophic for the profitable continuation of the business.
This Year, I’m Going to Add Second Level Management
Many small businesses operate with employees and supervisors. Second level managers are not as commonly found in the smaller businesses, but they can be extremely beneficial; and perhaps will help to grow the business. Second level managers are the ones who manage the supervisors. Adding second level management to your business can reduce the perceived risk to a buyer by not having the majority of institutional knowledge, leaving with the seller.
This Year, I’m Going to Develop Written Processes and Procedures
Every business uses some kind of process and procedure; it just may not be formally documented. Developing, documenting, and refining the processes and procedures that you use regularly can not only improve your operational efficiency, but can translate into actual dollars when you sell your company. A business with employee handbooks, training manuals, written policy guidelines, etc., will often command a higher price on the market, as they help with orderly knowledge of transfer. These materials generally make the acquirer feel more confident that the business will continue to operate smoothly after closing the sale.
These are just a few of the things you can do to improve your business in the year to come. If you are planning on selling your business in the next three to five years, then you may want to consider these improvements, as well as visit with an experienced Business Intermediary such as The FBB Group to discuss more options that could be more specific to your situation.
This month’s article applies to both calendar year and fiscal year-end taxpayers, as it is never too early to start or continue to improve your business. 2018 was an active year for the M&A industry, as the economy grew and businesses expanded. We expect similar activity in 2019 with the caveat that the change in control in the house has generated some concern that Congress will be able to remain as “business friendly” as the prior two years.
The FBB Team would like to wish you and yours a pleasant and safe holiday season and a prosperous 2019.
The majority of our business is derived from referrals. Please consider referring our services if you encounter a situation involving the potential purchase or sale of a business.
Ronald V. Chernak
President
Inspiring business relationships since 1982!
(Article previously published in December 2018 Newsletter)