Top Three Reasons to Increase Profitability . . . and how many more can you think of?May 28, 2019
- Profits are often the number one determining factor in the value of a restoration business – for every additional profit dollar, you could realize $2.50 – $4.00 in the sale of your business.
- You work hard – get the profit dollars you deserve
- With more profits, you have the wherewithal to compensate employees better than the competition. You’ll be the employer of choice in your market.
I’ll bet you can think of a lot more than three reasons to be more profitable, right? Add to my list . . . more vacations, secure your retirement, save for college education of your children, buy a new car, a nice boat – the list goes on and on.
Today, I’d like to focus on #1. Someday, you’ll want to exit the business. You might decide to sell to a key employee or a group of employees, it might be sold to someone in the industry or you might find a broker who could secure a private equity group that has an interest in your business. The one thing they all have in common is, they’ll all be interested in the profits of the business. They’ll be interested in a lot of other things too – but it’s likely that the most important thing to them is profit.
Your selling price will be determined largely by the profit dollars of your business. I was talking with a business broker earlier this week and here is something very interesting that came up in our conversation. Look at two businesses for sale . . . one has sales of $2.9M and the other is just over $7M. The smaller business has a net benefit to owner of approximately 20% (about $600k) and the other has a net profit of 6% (about $420K). Interesting, right? The smaller business will sell for just over $2M (3.5x multiple) and the much larger business . . . the seller is hoping to get $1.7M (almost a 4x multiple – due to the larger size, it has more appeal to the private equity market). The larger business will net the seller $300,000 less – best case scenario – than the seller of the much smaller business.
I’m passionate about helping owners maximize profits and improve their lifestyle. If you’d like to have a conversation about your business and how I can help you increase your profits and ultimately, the value of your business, let’s schedule a call. We can talk more about your unique situation and design a 6-month engagement to work together to achieve a specific outcome.
Let’s have a conversation – I can help. Schedule a call with me below.
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