Business Transition Planning Best Practices Study Reveals How Not to Spend Your Time

Are you the Boss/owner of your own business? Who does the
selling in your business? 
My guess is
that when you’re personally involved in doing the selling, your business is a
whole lot more profitable than the months when you leave the selling to others.

That makes sense because you’re likely the most passionate
advocate for your business. You have the most industry knowledge and the widest
network of industry connections.

If your goal is to maximize your company’s profit at all
costs, you may think that you should spend most of your time out of the office
selling and leave the dirty work of operating your businesses to your
underlings.

However, if your goal is to build a valuable company—one you
can sell down the road—you can’t be your company’s number one salesperson. In
fact,
business transition planning best practices tells
us the less you know your customers personally, the more valuable your
business.

The Proof: A Study of 14,000 Businesses

We’ve just finished analyzed our pool of Value Builder Score
users for the quarter ending December 31.
 
We offer The Sellability Score questionnaire as the first of twelve
steps in The Value Builder System, a statistically proven methodology for
increasing the value of a business.

We asked 14,000 business owners if they had received an
offer to buy their business in the last 12 months, and if so, what multiple of
their pre-tax profit the offer represented. We then compared the offer made to
the following question:

Which of the following best describes your personal
relationship with your company’s customers?

I know each of my customers by first name and they expect
that I personally get involved when they buy from my company.

I know most of my customers by first name and they usually
want to deal with me rather than one of my employees.

I know some of my customers by first name and a few of them
prefer to deal with me rather than one of my employees.

I don’t know my customers personally and rarely get involved
in serving an individual customer.

2.93 vs. 4.49 Times

The average offer received among all of the businesses we
analyzed was 3.7 times pre-tax profit. However, when we isolated just those
businesses where the owner does not know his/her customers personally and
rarely gets involved in serving an individual customer, the offer multiple went
up to 4.49.

Companies where the founder knows each of his/her customers
by first name get discounted, earning offers of just 2.93 times pre-tax profit.

When Value Is the Enemy of Profit

Who you get to do the selling in your company is just one of
many examples where the actions you take to build a valuable company are
different than what you do to maximize your profit.
  If all you wanted was a fat bottom line, you
likely wouldn’t invest in upgrading your website or spend much time thinking
about the squishy business of company culture.

How much money you make each year is important, but how you
earn that profit will have a greater impact on the value of your company in the
long run.
 

If you are thinking about selling your business and are
interested
in
business transition planning best practices then
it’s time to contact Value Growth Partners. We can help you build your business
value before you sell. Call us for a no-fee initial consultation at
312-525-8382.

Total
0
Shares
Related Posts