How can a small business owner create value, so that when he is ready to sell his business he can receive a fair price for his creation? There are steps he should take, and things he should pay attention to, in order to create that value – and create it in a way that a potential future purchaser can identify it and place a value on it.
We have already discussed, in prior articles, not “zeroing” your books but rather showing a healthy annual profit, as well as paying attention to the top line and demonstrating year over year gross revenue growth. We discussed keeping good business records, and creating and protecting intellectual property. We looked at hiring, training and keeping good employees and replacing your contribution as ways to show a potential purchaser that you are not the sole value of your business. Today, we will talk about customers as assets.
- Your Customers are an Asset. Businesses are in business to sell their goods or services. A potential buyer, for all the other things he might want to see, really wants to know whether he will be able to sell the goods or services after he buys the company and you leave. One way to demonstrate that to him is to value your truly greatest asset – your customers.
But how does one demonstrate the value of a customer base beyond the financial statements themselves? A valuable customer base is a loyal customer base, or a diverse customer base, or both. Specialty shops may want to demonstrate to a potential buyer that they not only have good revenues, but also an excellent reputation among loyal customers. Shops built on location may want to show that their revenues are broad based, and not artificially pumped up by a random one-time purchase or by significant non-location based sales that may disappear. But how does one demonstrate these things to a buyer? You must start now to treat your customers like an asset – meaning to identify and track that asset.
How you will do this depends on your type of business and type of customer. If you are a location based tourism-driven business, it may be enough to track the zip codes of your purchasers. Other companies may want to look into loyalty programs to track their shoppers and demonstrate a large segment of loyal, repeat buyers. Social media sites, like a facebook page or a twitter handle, can sometimes show engagement and customer loyalty. For large project services providers, the key may be good contracts. The point is, begin to consider your customers as an asset that helps you to sell your business, and look for ways to demonstrate that value.
 My friend John Emery, who has owned his own store for closing in on three decades, tracks this easily. “I set a goal to pass last year’s gross revenues by December 1”, he told me. “If I pass it earlier, that’s a really good year. If I pass last year’s total later, but still before Christmas, we did OK.” John is an intuitively smart businessman, and knows how to create value.