When I talk with business owners about selling their business, I find that often they are ready to sell, but the company is not – it is not making high enough profits to justify what the owner wants for the business. The following are ten ways to adrenalize your profits to prepare your company for sale:
Collections
If you aren’t collecting 100% of your receivables, you are letting profits slip away. And this is the worst kind of profit-drain. You have undoubtedly incurred expenses to get each receivable, so any of those receivables that are not collected are a double whammy to your Profit and Loss: a loss in income AND an increase in expenses. One of the quickest ways to adrenalize profits is to upgrade your collections systems.
Interest
If you are paying a lot of interest on old debts or lines of credit, you should put a plan in place to lower the drain on your bottom line. Try to pay off dead debt (debt that isn’t buying you anything) as quickly as possible – but make sure that you consult your accountant on the tax ramifications before you launch into your plan.
Add-ons
This is the McDonalds tactic. Package high-margin items with more competitive low-margin items to increase the profit on each sale. This is particularly powerful in retail.
Incentives to employees
You know the little things that eat away profits – unnecessary expenses, warranty items, accidents, sick time, etc. – give your employees some incentives to get better in those areas.
Specialization
Break your operations into areas of specialization and give your key employees responsibility over certain tasks and areas of focus. You’ll be pleased with how efficiently people will work when they specialize in one area.
Quality Control
Fixing mistakes is costly. Upgrade your quality control and you should see a reduction in mistakes. This improves your bottom line AND makes for happier customers. For tips in this area, research the Six-Sigma theory of business.
Discounts
Take advantage of early payment discounts. A 1% or 2% discount may not seem like much, but annualized over a year’s time, those discounts add up to some major savings.
Overtime
It is cheaper to hire new employees than it is to consistently pay overtime. If your overtime is more than 20% of payroll each month, you are probably understaffed.
Shop (get rid of old dusty vendors)
In many cases, businesses get used to a stable of vendors and they get to the point that they don’t even shop around. It is a good idea to occasionally shop around to see if your regular vendors are giving you the best deal.
Negotiate
You can save a lot of money by simply getting into the habit of asking the one simple question each time you purchase something: Is that the very best you can do for me? You will be surprised by how many times you can get a better price or better terms. All of which contributes to your bottom line.
– Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.
