A critical step in building a highly sellable business is maximizing value for your buyer.
There are four key things you can do to achieve that, two of which were discussed in a previous post - reduce reliance on you as business owner and build recurring revenue streams.
The two things covered in this post will help you make your business more robust and attractive to a potential buyer.
Minimize reliance on particular suppliers, employees and customers
Reliable suppliers, customers and employees are great. They are easy to deal with, reasonable and never cause issues. But they are a mixed blessing for a business owner when you come to sell.
A potential buyer wants your business to be robust, and will value it more highly if it is. Over-reliance on particular suppliers, customers or employees will detract from the value of your business in the eyes of a buyer.
Potential buyers will want to see that your business can quickly replace a supplier if it needs to, and that you are getting the best price by using multiple suppliers where you can.
You’ll also need to demonstrate that you aren’t relying on one or a select few customers for the bulk of your sales. A good spread of customers is preferable from a potential buyer’s perspective. It reduces concentration risk and is clear evidence that your product or service appeals to a range of customers.
Finally, a potential buyer will want to be comfortable you have a good mix of staff who can cover all key roles in your business if required, rather than being highly dependent on a handful of outstanding staff.
You need to be monitoring these issues and making changes on a regular basis. Staying on top of any over-reliance on particular suppliers, customers and employees is the best way to ensure you are continually making your business more robust and valuable. It will also reduce buyer concerns during your business exit.
Develop high customer satisfaction
Most business owners would readily agree that it’s important to have satisfied customers. What is less well appreciated is how much having satisfied customers can add to the value of your business.
While a lot of businesses carry out some form of customer satisfaction survey, few surveys actually measure how likely it is a customer will repurchase from you or refer your business to a friend. This is where the real value lies with satisfied customers.
The most effective tool to measure this is the Net Promoter Score, which was developed by Fred Reichheld, Bain and Company and Satmetrix. The Net Promoter Score is based on one simple, direct question: How likely is it that you would recommend our company/service/product to a friend or colleague?
Scoring is based on a 0 to 10 scale. “Promoters” score 9 or 10 and are considered loyal enthusiasts, “detractors” score 0 to 6 and are considered unhappy customers, and “passives” score 7 or 8 and are considered neutral.
Most importantly, from the perspective of selling your business, is that Reichheld found “promoters” were statistically more likely to repurchase from a business or refer it to others or both. As a result, these businesses grow faster than low-scoring businesses and are much more attractive to potential buyers.
The Net Promoter Score is a popular tool as it’s easy to implement using common survey tools and, with only one question, attracts strong response rates. The other key benefit is that by focusing on customer satisfaction in such a targeted way it’s a lot easier to get buy-in within your business to improving your Net Promoter Score.
If you want to know what your business is worth to a potential buyer right now, you can complete the free Value Builder Score here in less than 15 minutes.