Protecting the resale value of your business

I just finished reading The Power of Habit, by Charles Duhigg. It has been perched atop many “best of” business book lists for months, and for good reason: It is not only a joy to read — beautifully written with fascinating research and examples — but also gets you thinking about your own habits and how to change them.

The other day I was washing my 2003 Ford Escape and thought for the millionth time that I need to get the side mirror fixed. I’ve been driving around with the cracked version for so long now that I hardly even notice it. But I found myself thinking that if I ever trade in my Escape at a dealership — or more likely, my husband sells it on CraigsList or eBay — I wouldn’t want that banged up mirror to hurt the car’s resale value.

Likewise, I was talking to an interior decorator friend recently about upgrading my kitchen. I admitted that I don’t want to pay extra for granite countertops and actually like the look of many solid-surface products better. Not surprisingly, she cautioned me that granite will add more to the resale value of my house.

How is it that we’re in the habit of thinking of a car or a home in terms of resale value, but not our most valuable asset: our business? Even if you have no plans to sell today, or in the short term, or ever, it’s a good idea to get in the habit of protecting the resale value of your business. If nothing else, owning a business that can be sold at any time gives you options, should the day come when you need them. Another happy byproduct is that a sellable business is typically more profitable, as well as more enjoyable to own and operate than one that is not.

Here are some good habits to get into that will contribute to the resale value of your business:

Maintain Your Books

If there is a business equivalent of granite countertops in a home kitchen, it’s books that are meticulously maintained and updated. That means the financials for your company (Profit & Loss Statements and Balance Sheets) are kept current: Having your accountant do your books annually for tax purposes won’t cut it. Buyers will want to see interim financials for your business, and you should be able to fulfill any reasonable request in terms of reporting for specific time periods and accounts.

This is a part of your business where DIY solutions can do more harm than good. I can’t tell you how many spread sheets I’ve seen that business owners have created using their own “system.” QuickBooks accounting format is the universal language of business, so you and your company must be fluent in it if you aren’t already.

Minimize Discretionary Expenses

As owners we get in the habit of trying to minimize the taxable net income of our business every year. This is no secret, and most buyers expect that there will be a certain amount of discretionary expenses that the owner runs through the business. But does the business really need to pick up the tab for every roll of paper towels and drive-thru lunch you buy? Use common sense when it comes to discretionary expenses, and track them diligently in QuickBooks. You’ll want to easily and accurately show a buyer which expenses are directly related to operations of the business, and which ones are not.

Spend Less Time at the Office

Of all the bad habits that we have as business owners, thinking we’re indispensable has to be one of the worst when it comes to building value. Buyers love businesses where the owner is “operationally irrelevant.” That means the owner can spend more time working on future planning and strategy for the business, and less time putting out fires and making frontline decisions.  Entrepreneurs are do-it-yourselfers by nature, but it’s important to understand that while that inclination may be critical in getting a business started, it does not build transferrable — i.e. resale — value in a business. If you’re serious about building a sellable business, it’s time to stop being the go-to guy or gal.

What are your thoughts? Do you think of your business in terms of resale value?

If you’re not sure what your business is worth, contact Synergy about getting an affordable market-based value assessment for your company.

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