Whether you are ready to sell your business now or in the future, steps should be implemented now to make your business more salable. Potential buyers will weigh purchasing your business against other investment opportunities. Taking these six steps will help your business stands out from the others. We advise using Professionals Advisors, but we hope these six steps get you headed in the right direction.
1. Clean up Your Books. Are your monthly financials completed by the 15th of the following month? Are you comfortable that the P&L, Balance Sheet, AR, and AP are correct and truly represent the status of your business? Do NOT run your business by only eyeballing the checkbook.
2. Understand your Books. One reason step one is not followed is that many times financial numbers are not that meaningful to business owners. Financials are only a useful tool if understood and used correctly. If you don’t fully understand your books, get some help. Also, make sure the data is presented to you in a useful format. Many businesses have too many general ledger accounts to be meaningful. Use sub-accounts to clean up the clutter. Expense items should be reviewed as a percent of sales. Track the change in percentage of key expense accounts and manage them accordingly.
3. A/R Issues. Many businesses have liquidity issues. One of the easiest ways to find the “low hanging fruit” is to take a hard look at your accounts receivable (A/R). What percent of your A/R is over 60 days old? 90 days old? Recently, a client at our urging reduced their largest customer’s 60+ days A/R by $100,000 even though sales had increased. This cash increase reduced their yearly factoring fees over $35,000.
4. Inventory Issues. Inventory is another area where much cash is wasted. Check your turnover on stocked items. Items that you hold for more than 90 days need to be evaluated for different re-order or manufacturing levels. Any inventory that is older than 180 days needs special attention. I have heard many arguments about this “great deal” clients made buying goods. However, inventory is described as a “wasting” asset. Besides consuming precious working capital, it also generates additional storage, insurance, and handling costs. Unless inventory turns and solid profits are realized-Liquidate!
5. Surplus Equipment. Entrepreneurs are great accumulators of “stuff”. I am not a psychologist, but I think that it gives them some measure of comfort to see all the bulldozers, trailers, forklifts and tanks that they own. Bottom line is that if an asset does not earn your business profits compensatory to its value, it is a drain on cash flow. Again, liquidate!
6. Analyze Lead Sources. I believe much money is wasted on fixed cost advertising (yellow pages, newspapers, radio, etc.). I understand it is important to have a presence and a clear message in the marketplace, but when was the last time you researched the source of your new clients. You might be better served by cultivating more referral sources. Know your true sources and costs to secure and keep clients. Bankers Advocate utilizes overseas Virtual Assistances to keep our costs way down.