Stop these 5 value-draggers de-valuing your business
When it comes to business sales buyers have the upper hand. Supported by due diligence, buyers step back and look at a business objectively. The process detects inefficiencies and risks, known as ‘value-draggers’. Value-draggers cost time, money and effort to resolve and can impact on the selling price the vendor can achieve.
Address these five value-draggers and put yourself back in control of your business valuation.
Value-draggers – First impressions
You walk into a coffee shop. The interior décor and furniture look like they’ve seen better days. To you the space feels tired and unloved. To the owner it’s vintage. First impressions count and how you present your business can detract from its value.
Prevent first impressions from tarnishing reputation and value by keeping on top of cleaning, maintenance and decoration. If you have a shop window, refresh your window displays on a regular basis, at least in line with the seasons. Review your website content to ensure it’s a true reflection of your business offering.
Value-draggers – Stock
Fashions change with the seasons, trends come and go, use by dates affect consumer behaviour. Dated or surplus stock is one of the biggest value-draggers in business. It takes up space and ties up capital, preventing future business growth and investment.
It’s difficult to predict future trends, but when purchasing products or components consider which customers might buy it and how long it might remain popular. Consider how long you might need to hold the stock for and resist the temptation to buy large volumes at discount if don’t know for sure how fluid the stock will be.
And if you do find yourself with outdated stock, get rid of it. Turn it back into usable cash and recoup what you can through a fire sale, list it on Ebay, take it to a car boot sale. Remember, it’s dead money sat in the stock room, so even if you have to heavily discount and sell below cost price, you are converting it into usable cash.
Value-draggers – Invoicing
Non-paying and slow-paying customers are a drain on profits. A potential buyer looks at your books objectively and will identify any cash flow problems.
One way to prevent cash flow issues is to restrict credit terms. It’s in your gift to choose payment terms and to limit the number of customers you offer credit to. Don’t feel obliged to offer credit, especially for small or low-value orders.
Value-draggers – IT
Out of date computers, software and mobile phones are classic value-draggers. There’s no excuse for operating dated IT equipment, systems and software, particularly with low-cost technology and free-to-use versions are so readily available to small businesses. Paper files, manual ledgers and records slow you down, reduce efficiency and de-value your business.
Start by moving important databases and ledgers online, and sourcing affordable or free accounting software. Sell or recycle old PCs and hardware to raise valuable income and free up space.
Value-draggers – People
In order to build value, small businesses need to operate a lean organisation structure. Too many staff on contracts or hanging around with little to do is inefficient so keep your team busy during their core working hours. If they finish a task early, a delivery is late, or footfall is low, minimise downtime and find another job for your staff to focus on – perhaps organising the stock room or giving the door a lick of paint?
Zero-hours contracts may have a bad reputation, but they are a genuine consideration for small businesses that want to make the most of their resources. The retail, leisure and hospitality industry is a classic example; recruiting temporary staff during peak periods like Christmas and holidays.
If you’ve identified any of these value-draggers in your business then it’s time to fix them. For support and advice along the way, you know where to turn.