What’s Your Business Worth?

At least once a week a dealer will ask me what I think his business is worth. A business broker friend of mine tells his clients that “your business is only worth what someone else is willing to pay for it … and that may be a whole lot less than you thought.” Concerns over decreasing values of wireless businesses are real but don’t have to be cause for panic. Unfortunately, the days of getting multiples of revenue with a cursory glance of the balance sheet are gone.

The failure of so many “dot-coms” has given new meaning to the words, due diligence. The process has become much more complicated and the computations much more intricate. The factors that now determine the overall “worth” of a business in today’s climate reach well beyond the scope of the businesses’ bottom line.

Our organization doesn’t sell businesses, but we do help them get ready to sell. The good news is that there are steps you can take to dramatically increase the value of your business. The criteria and questions below represent a great exercise for all businesses, regardless of whether they are considering looking for a buyer or not.

We find that most businesses don’t really know the answers to a lot of the questions, but some can quickly double or halve the perceived value of their business in the mind of a potential buyer by putting some relatively simple practices into place. These items are critical to the overall health of the business. When someone asks us to help a business increase its net worth, we begin by looking at the following areas:

Profit & Loss Statements

Most financial analysts will look at the “quality” of your data and “trends” over the last two or three years to determine if your business is on the rise, or on the”demise.” First they’ll look at the bottom line to see if there is one. Then they’ll look for trends, and most importantly, if your net profit as a percentage of revenue is rising or falling. The final test is to determine if the percentage is healthy enough to make a buy recommendation to a potential purchaser.

Portfolio of Products and Services

Do you have a mix of products that makes sense for your business? Is each category profitable? Some dealers think they need to carry every wireless carrier to be able to serve the needs of every customer that calls or walks in. This is more often than not a very unprofitable way for a dealer to go to market. Instead of having an outstanding relationship with one or two manufacturers or carriers, they diversify their business to the point of having very little leverage to negotiate or receive additional support because they demonstrate no loyalty in return. In most cases, we recommend that dealers pare back the number of products and carriers they represent as a means to INCREASE their sales and profitability.

Expenses

Are your expenses in line with revenues? A major red flag goes up if your trend shows expenses growing faster than revenues. This signals trouble to potential buyers. Look at your key expenses as a percentage of revenues and compare them with the last two years. Keeping fixed and variable expenses in line is critical to business valuation.

Revenue Areas

Today, most buyers are interested in businesses that are growing. If your sales and margins have been steadily increasing, you pass the first test. Next comes a look at whether your manpower levels are appropriate and productive. Retention and experience counts too, as expertise is valuable to both customers and buyers of your business. What are your “costs of sales” as a percentage of revenue? There are a lot of things you can be doing to drive sales up in your operation from providing sales training to performing sales meetings. A management and motivation process similar to the popular CDI Beat Your Best(TM) program demonstrates structure, measures results and adds value.

Customer Base

One of your most valuable assets is your customer database. The number of “active” customers and the average value of a relationship over time are key ingredients for determining the “worth” of a business. Thus, the business with processes and procedures for maintaining and growing customers over time are worth more. These are some of the most important criteria for determining a business’s worth and we could certainly spend a lot more time on each category and how to build it. Other items such as fixed assets, real estate, infrastructure and recurring revenue streams are also important considerations. This outline will provide you with the basis for creating a written plan for improving each one of these areas. Buyers today are a lot more critical about the value they place on your business. The more you can do to impact each of these areas, the more your business will be worth to a potential suitor. As my friend says: “Your business is worth exactly what someone else is willing to pay for it.” Now that you have a better look at what someone else will see, “what’s your business really worth?”