Business value – don't hang your hopes on the little stuff

I used to own this great Land Rover Discovery.  That car was kept in near perfect condition for the five years that I owned it.  If anything needed to be repaired – it was done.

The body was mint and was kept that way.  It had some small rust spots once on the roof rails and so I had them both replaced with new ones.  The wheels were dented from on street parking – replaced.  The engine had some sort of fault once – had it replaced under warranty.

I did all this.. because I always thought that it would hold its value better when time came to sell it.  That it would command a top price for being in such great condition.

The reality was that when buyers were looking for a car, they always compared its price with others of the same age and mileage.  The fact that it was in such great condition was a bonus to the buyer only, it made little difference to the price I got for it.

I think that the same is true with businesses.  Sometimes, as business owners, we take great pride in all the added value – the software system that was developed in house, the sales process, service levels, etc.

When it comes time to sell your business however, all these details we have spent so much time on are nice, but they are just bonuses to the buyer.  The price that they will pay will be primarily determined by the fundamentals – profits, cash flow, revenue growth, sales forecasts, repeat business, etc.

My advice is to spend time on the extras – the “added value” – but do it for yourself, your employees, and your customers; don’t expect it to add much in the way of financial value to your business.

Make sure that your priority is to get the fundamentals right.  These fundamentals tend to trump all other attributes especially when it comes to price.  All that “little” stuff? Well it helps a bit – by greasing the wheel and making the buyer’s decision all the more easy.