How much are our businesses really worth?

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bulldozer with cash

bulldozer with cashSomeone I know has communicated with me to sell a business that would, he believes, “fit well” with our enterprise. He is totally correct. The possible seller’s business has potentially compatible clients and its database and recurring revenue would undoubtedly be of interest to us.

The sticking point is the price.

Of course, in reality, the sticking point in virtually all business sales and transactions is the price. Ultimately, In deciding to purchase someone else’s business, we need to be reasonably confident that the potential return on investment is worthy of our efforts.

I won’t discuss all the details behind the proposed transaction and discussions — although nowhere am I publishing identifiable information about the vendor, I don’t want any linkages to come through in this blog posting. That would be disrespectful. However, the discussions about valuation are core to the “why” effective marketing systems are so important.

Recurring and growing higher-margin revenues increase business valuations. Decreasing revenues hurt them. And effective marketing and sales processes obviously are the vital to achieving these recurring revenues and margins.

If you under price your service — as is common for tradespeople entering the business as contractors or sub-trades — you won’t lack for clients after a while if your services are excellent. Word-of-mouth will take care of your marketing. ¬†You’ll end up, however, with a job not a business — and a job that pays probably far less than your skills are really worth.

If you take things to the next stage and price your services closer to fair market, and manage your business systems well, you’ll have a sustainable business, but you will need to be careful about the dips and crashes and then may be forced to extreme price sensitivity and retraction.

However, if you take a marketing approach to your business, and apply basic marketing principles effectively, you can escape these traps, retain your market position, and build in systems that allow you to balance your leads and sales to the market conditions. (You can, for example, dial-up or down your advertising, to obtain the sales-converting leads you require.)

Then, when it comes time to sell your business, you can show recurring numbers, healthy balance sheets, and sustainable and growing opportunities.

You’ll get your price.

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