I’ve heard from many of my business owner contacts over these last few months, thanking me for the notes that we put together, sending thoughts and questions — and letting me know that they’ve sent their friends to see us for their business and family tax needs.
With “busy season” right around the corner, this means a great deal to me.
As you probably have gathered, I write you these weekly notes because I sincerely desire to offer my experience and expertise in running the *business* aspect of my tax accounting firm to my fellow business-owner readers.
Today, and speaking of value, I thought I would offer you some important thoughts on your own business’ valuation, and what buyers and business owners should care most about…
The Most Important Factor in Small Business Valuation
“We all yearn for what we have lost. But sometimes, we forget what we have.” -Mitch Albom
Many accountants provide “small business valuation” services. It’s extremely useful, for a variety of reasons — but clients often start from the wrong place.
Here’s what I suggest — as you look at the real value of your work, consider not only your immediate (short term) P/L but also your long term hopes; and in that process (this is the clincher) very carefully consider the value of the customer or the client.
Every business, every product line, every service organization, even if it is distanced from the ultimate consumer by a chain of distribution, is still dependent on an actual consumer or end user for its lasting success.
The greatest asset a business can ever possess is a known list of satisfied, loyal customers.
Emphasis on “known”.
Recently, I observed a local business that was for sale. My observations revealed that the store’s inventory mix was poorly selected for its primary clientele, which were business people and office workers. Considerable floor space in the store was being wasted and the store did have excellent traffic during the day.
The asking price for the store was a little high (as asking prices usually are), but it looked to me like the numbers could be made to work. But here is a common circumstance in these scenarios, and the million-dollar question (literally):
“How many people with their home addresses or valid email address are on your mailing list?”
Many business owners, even years into operating a business, have never bothered to collect their customers’ names and addresses onto a mailing list. They have no way to directly reach out to past and present customers.
business owners like this mistakenly believe that the value of a business is its lease, its furniture and fixtures, its inventory, its financial statements.
They don’t understand that none of those things are worth much without customers.
Now let’s take “big business”. When you buy a new car or a new stereo or a new appliance, you are separated from that product’s manufacturer by a chain of distribution that includes manufacturer’s representatives, wholesalers, warehouse operators, and the store or the dealer.
Yet you probably filled out a warranty registration card and mailed it to the manufacturer or registered it online. Why is that done? One reason is so that the manufacturer can find out who its customer is. Some manufacturers then use these lists to market. Others just accumulate the data unsure of what to do with it, but at least they *have* a customer list.
As you establish marketing objectives, strategies and the VALUE for your business if you ever want to sell it, I urge you to carefully consider the value of the customer FIRST.
Believe me, buyers of businesses care about this data … and so should you, as someone who would want to actually grow.
Feel very free to forward this article to a business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for families and business owners. And we always make room for referrals from trusted sources like you.
Dickmann Tax Group