I remember hearing a speaker ask a group of about 100 high-achieving salespeople this question. For some reason, they talked all around the answer, but no one offered the answer the speaker was looking for. The answer he wanted was:
“The Goal of the Firm (Company) is to Make Money”
Dr. Eli Goldratt, from the book of the same name.
Now it isn’t a shock to a business owner to hear this. How can a company serve its customers, hire and develop employees, pay taxes and participate in its community as a responsible corporate citizen if it can’t make money? Sometimes, though, with all the competing dynamics, the focus on making money gets lost.
I am shocked to say that I regularly see companies who are not making money. They may have plenty of revenue coming in. They may have decent gross profit margins (especially if they aren’t categorizing their cost of goods sold according to industry standards.) At the bottom line, they don’t have a decent net income. OK, you say, these are privately held businesses who aren’t trying to achieve a high net income. They are managing to minimize taxes, the owner says.
This might be true. Unfortunately, I have seen plenty of businesses that are not currently saleable because they really aren’t making any money, even considering their taxes. Their services may be underpriced for the market, so they have been “buying” those revenues. They may be paying too much in labor costs relative to the work required and the prices earned. These are not easy fixes and will take time to correct if they can be corrected.
When it comes to having options when it is time to exit your business, your company must show that it makes money. If you have taken money out of the company and invested it elsewhere, this won’t be as important to you. I do know several owners like this. They are financially ready any time to exit their businesses and are working for the fun of it. I run into more business owners who need to sell their business to fund their retirement. They are hoping to achieve the maximum price. That price won’t be as much (if anything) if the owner can’t present the business as one that can be run on a profitable basis.
Do you know how much your business would be worth if you were going to sell it today? What are the factors that could improve the value of your company when you are ready to exit? If you’d like to discuss your readiness for sale, selling, or buying a company, or help with an existing acquisition, please give us a call.
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