5 Tips for Remaining Attractive to Purchasers
It’s 2023, and you’re running your business every day while fighting inflation and higher interest rates. Because of inflation, it’s highly likely your real profits are down.
Many of you have gotten to the age where you’re thinking about transitioning the company to a new owner and starting a new chapter for yourself. If you’re one of these individuals, you’ve reached the point where you need to start working on your company rather than in your company.
In most of the industries Creative Planning works with, there’s a lot of buying and selling activity. There are more buyers today than there were 20 or 30 years ago — and there are more sellers too. Many industries are having consolidations take place, and it’s become more common within the last decade for a company to have three to five locations rather than just one.
Here are five tips for helping keep your business attractive to potential purchasers.
Review your gross margins. If your gross margin on sales two years ago was 40% and your expenses were 35%, do you still have a 5% spread in those two figures today? Over the last couple of years, you’ve seen inflation increase the prices of all the products coming to you from your vendors. Hopefully you’ve worked diligently to increase retail prices to keep up with inflation. If that 5% bottom-line profit is only 2% today, your corporate value is likely going down. Is there any way to increase gross margins by 1% per year for the next two years?
Analyze your balance sheet and profit loss statement on a regular basis. Once a week or once a month, spend one or two hours in your office with the door shut carefully analyzing each line item. Improve your numbers (if possible) and work on making them more accurate.
Work on holding down the rate of increase on your expenses. Payroll and wages are probably your biggest expense, and you’ll definitely want to keep all your best people. Watch your payroll (and other) expenses closely. Hold down your total expenses where possible.
Check your inventory and accounts receivable. Are those numbers accurate?
Get started today. If you’re certain you want to sell or transition your business in the next one or two years, you need to get started today — and spend time every month working on your company. Find the right people to work with to develop your exit plan and start spending more time on the business and less time in the business.
At Creative Planning, we specialize in helping business owners increase the value of their businesses prior to selling. Let us help you ensure all aspects of your business and personal finances are well cared for. If you’d like help with succession/exit planning for your business, or any other financial concerns, please schedule a call.
