Business Brokers Guide to Building Business Value – Sales and Marketing Systems

Business Brokers Guide to Building Business Value – Sales and Marketing Systems

Business Brokers Guide to Building Business Value for Business Owners – Developing a Sales and Marketing System

“We see that Bob, while a talented engineer, is really an excellent technical salesperson.  We want Bob on our team and will acquire your business to get him.”

On the other side of the equation, Bob was excited to have the opportunity to sell more services at the larger firm that was acquiring the company where he was employed.

This true story shows the power of having a good sales force that is not dependent on you as the owner. 

At engineering firms, often all sales are made by the Partner Owners.  In this case, it had been delegated to a talented younger engineer.  Simply because the main salesperson was staying with the selling company after the sale the risk to the buyer was reduced –  and the price went up.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

Great systems where decisions can be made without you, the owner, necessarily being involved increase the value of the business.

Having a sales system that does not involve the owner is even more powerful as it means the client relationships do not all rest with you – because you intend to leave.  The sales systems rest with your employees who will stay.

Continuity in client relationships is a powerful indicator that your business and business profits are transferable.

Look at how you can build your business to include a sales process that does not require you and build your business value.

 Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

A Business Broker’s Tip to Improving Your Business Value – Determine Your Most Profitable Customers and Fire the Rest

Yes, I am a business broker, I also have 10 years experience owning a home building company and am an JD, CPA, and CVA.   This is good stuff when followed.

Every contracting business and engineering firm has profitable and unprofitable customers.  If you have not analyzed this, you should.  In most cases owners are shocked when they perform this analysis.  Take each customer (or product type or market group) and deduct the cost of goods sold to them.  Fairly allocate overhead costs either by a simple blanket allocation of all overhead or by breaking out different overhead costs as they apply to different customers.

Considering Selling Your Business? Please click here for a downloadable e-book, “ 10 Ways to Increase the Value of Your Business“.

New Construction Blues

Take a look at this small mechanical contractor’s books.  Simplified, they look like this: 

Sales Revenue of $5,000,000 broken down as:

New construction        $2,000,000
Residential service     $500,000
Commercial service    $2,500,000

Cost of Goods Sold $2,675,000 broken down as:

New construction        $1,500,000
Residential service     $175,000
Commercial service     $1,000,000

Overhead totaled $2,000,000, broken up as:

Indirect labor (including owner’s salary)       $750,000
Other overhead                                         $1,250,000
Total profit                                                $325,000

The simplest analysis to determine profitability is:

Customer Profitability Chart

Sales –            COGS –          Allocated Overhead = Profit

New Construction       $2,000,000      1,500,000        $800,000                 -$300,000
Residential Service     $500,000          175,000            200,000                   125,000
Commercial Service   $2,500,000      1,000,000        $1,000,000                  500,000

The overhead was allocated based on the percentage of sales of the customer type to total sales. 

The next level of analysis might be to allocate indirect labor by the amount of time spent on each customer type.  Track or, if you must, estimate payroll allocation to the hours spent direct marketing, supervising, meeting, getting paid etc.  With new construction the profitability might decrease more. 

As you can clearly see, this business is performing new construction services at a loss.  Unless there is a really strong business reason, this business owner should either raise prices for new construction or focus on selling more residential and commercial service.  Sales for the sake of sales is ego, (expensive ego) not a valid business reason.

You can make the argument that $100,000 of overhead is paid from new construction projects but that can be equaled with additional sales of under $200,000 of commercial services.  Transition to the higher paying customers.  The most profitable companies consistently perform this type of analysis and focus on their most profitable customers.  Over time this is how exceptional profits are generated.

Greg’s Tip:  Improving sustainable cash flow and profitability is the most effective way to increase the value of your business.  This is by far the most important factor in determining business value.  Sell when profits will be improving right through settlement.

Gregory R. Caruso, JD, CPA, CVA
Harvest Business Advisors
Business Brokers, Business Valuations, Business Transactions
609-664-7955
gcaruso@harvestbusiness.com
www.harvestbusiness.com

Remodeler’s Advantage Webinar; Gregory Caruso on Building Business Value with Succession Planning or Business Exit in Mind.

Great stuff if I do say so myself.  While geared for residential remodelers the talk applies to any cyclical business owner such as general contractors succession planning, subcontractors including electrical contractors succession planning, plumbing contractors succession planning, HVAC contractors succession planning, engineering firms succession planning and all sorts of distributors, manufactures, professional service firms and the like.

What I covered in the webinar was:

1.  Why Succession Planning?  Because with a succession plan you will build a better business that will be more manageable.  You will resolve management and family conflicts (take it on if you really are willing to do what it takes).  You will sell your business when you want to for more money in less time.  Why would a business owner not want that?

2.  What is a valuable business?  Think of an ATM.  Simple systems that can be mastered by ordinary people.  The ordinary people (who are extraordinary at this point) use the systems over and over and in effect stay around.  Works every time.  Money or profits come out.  While simplified that is what creates value in a business.

3.  How do you actually capture and collect the value you created?  How to minimize taxes, minimize risk, and maximize price through the preparation and sales process.  Some of this is not what you think.

Click here to learn more about Remodelers Advantage

Gregory R. Caruso, JD, CPA, CVA
Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

 

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