10 steps to maximise the value and saleability of your business – Step 3
In the third instalment of our 10-blog series about the steps business owners may wish to consider when working toward maximising value and saleability, we look at some of the external and internal factors at play:
Step 3 – Reducing dependency on just a few customers, suppliers and staff
When a new owner takes over a business they will look to build on what the business has, not fill the gap created by the business transfer. A change of management and business ownership can put preventable stress on established relationships with not only your customers, but also your suppliers and staff. This needs to be managed.
Buyers are reluctant to purchase if there is a perceived or actual high risk of losing a major customer, critical supplier or key employee. It is therefore vital that you are not over-dependent on any of the aforementioned.
You, as a business owner, need to ask yourself “can the company survive if the biggest customer, or your best employee, is lost?” – because the buyer certainly will.
It is healthy to demonstrate a variety of customers: well established, new, some stable, some growing etc. Your largest customer should ideally on average be no more than 10-15% of your sales. It is not uncommon for 80% of sales to come from the top 20% of customers, but do those 20% provide 80% of your profits?
You need to look at ways to reduce the chances of losing customers and perhaps introduce the following, if not already done so:
- Incentive schemes;
- Introduce contracts; and
- Future loyalty bonuses.
It is also important for key staff to transfer their skills and knowledge to other employees, to ensure there is no over dependency on one or two employees.
Being aware and acknowledging the fact that your business, like all businesses, needs to reduce dependency on customers, suppliers and staff should hopefully allow a smooth transition for all parties, post-sale.
Next time, we will discuss the importance of keeping your business’ brand values clear, attractive and resilient.