how to measure value
Cash is a good measurement of value
Value can mean different things to different people. The "price" to one buyer may signal low value in the benefits received; to another buyer, the "price" may indicate high value. That is why value can be a different measurement depending on to whom you market your business.
But there is one commonality that exists when measuring value: cash. A dollar-is-a-dollar-is-a-dollar. And the more dollars you have, the greater the value of your business.
So how should you measure a greater value
1: Your Sales Should Be Trending Up
This is a given requirement before any business will sell at its maximum market value. If sales are trending down, it's best to revisit your marketing strategy or exit the business.
The buyer will analyze your sales numbers as follows:
- Are your sales from repeat
customers
or are they one-time sales? The more repeat customers you have, the better.
- Are your sales from a broad
spectrum of customers?
You have heard of the 80-20 rule, meaning that 80% of your business comes from 20% of your customers. Thisis typical for most businesses. The concern is when 95% of your sales come from 2-5% of your customers. What happens to sales if one of your major customers leave? Having a broad spectrum of customers increases your business value.
- Can your sales be replicated?
In other words, can you take your product or service and replicate the sales success in a different market or to a different target segment? If yes, your value goes up.
- Finally, the buyer will want to
know whether the sales will continue when
you transfer the business over to them.
If your business brand, product, customer contacts, etc., are dependent upon YOU BEING THERE, you must prep your business to carve yourself out of the picture. Your business will be more valuable if it is NOT dependent on you.
2: Are Your Expenses Being Managed
Your company will have greater value when expenses incurred support the business operating and marketing strategy. Frivolous expenses or excess employees indicate sloppy management that can decrease the overall value of your business.
Prep your business by removing:
- expenses that are non-business related:
pay off company loans made for personal or non-business use
- expenses that do not produce income:
analyze individual line items and pay-off or terminate service relationships for expenses that do not generate incomeAlso, prep your business by documenting:
- large expenses items that support the business operations or sales strategy
- expenses items that are part of your marketing strategy
Business Selling Prep
