Profit vs value when selling a business
Profit and value – they’re not the same
If your business is making a profit then you’re winning, right? Only problem is – profit is only retrospective.
If you’re looking to sell, potential buyers not only want information about your past performance, they want a glimpse into the future too – and that’s where value comes in.
Value is the measure of your business’s success to date and its future potential.
It also measures more than just dollars and cents - things like intellectual property, plant and machinery, other assets, client loyalty, employee contribution, and lifestyle perks.
Pretend for a moment you thinking about buying a business. Surely you wouldn’t just be interested in the profits – you’d also want to get a feel for the projected profits – next year, in five years, and how hard you’d have to work to realise them. This will depend on the systems in place, the brand, its position in the market, the market itself, consumer perception, your investment (money, time, effort etc), the talent in the team, the list goes on.
Once you understand the value that drives your business’s success, you can then plan to increase that value and profit will naturally follow. This will also position your business optimally when it comes time to sell.
Tips to increase the value of your business:
More than money – Put yourself in the shoes of a potential buyer and remember money isn’t everything. What else does your business offer? A great lifestyle, top-notch staff, great systems and processes?
Stand out from the crowd – What makes your business unique? Location? Service? Product? Customers? Something must set you apart. Use your differentiating factor to appeal to buyers.
Keep good staff – Look after your staff (the good ones) by building long-term incentives, stability and career progression opportunities. If you’re selling, motivate them to stay for the new owners. Great staff = great value.
Don’t be indispensible – If a business is dependent on just one person it can negatively affect its value. If that person is you, then what value does your business have for a new buyer?
Failure to plan is planning to fail – Create a long term strategic plan that maps out your vision for the business, market changes, growth potential, and any threats. This will help give prospective buyers a true picture of your business’s value.
Selling your business is a major decision. Understand what drives the value in your business before you sell. A glimpse into the future might be all it takes to get the sale you want.
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