The Value of an Efficient Business
When selling a business, people often woo buyers with hard numbers such as cash flow, customer count, inventory, and tangible assets. Or they tout the benefits of an experienced management team, distinctive products, or a strong brand. One important factor that is frequently overlooked is efficiency.
Maximizing efficiency in business operations is the goal of every manager seeking to boost profits by better managing the bottom line of a business. So why not promote the company’s efficiency as a key selling point? Any new owner should place added value on a smoothly running operation.
Some of the factors that create a more efficient organization can be readily adapted to be a part of the overall sales pitch when selling a business. These include quantifiable actions like investments in technology, streamlining the supply chain, and outsourcing appropriate functions, along with less tangible elements such as a general commitment to continual improvement. All are attractive to a buyer and can help to boost the perceived value of a business.
IT Improvements
Technology upgrades — even those that are relatively simple and inexpensive — can enhance the value of your business. Investing in software and hardware that simplify and streamline functions such as accounting, employee benefits management, and inventory management make a positive impact on the bottom line – and on potential buyers.
Among the most important technology updates? Moving your company to the cloud. Offsite storage of databases translates into lower costs for in-house facilities and equipment, and reduced IT labor costs. Cloud access to information also speeds and streamlines important management functions, with improvements in flexibility and productivity.
Speeding Up the Supply Chain
Whether your business is a manufacturer or distributes goods made by others, time to market is more important than ever. Taking steps to improve efficiency in your supply chain pays dividends in improved competitiveness, lower costs, and enhanced margins, which are all key selling points for a potential buyer.
Investing in automation and technology throughout the manufacturing and distribution chain (without sacrificing quality) can result in long-term reduction in labor costs and reduced waste. Having these changes in place and operational can be promoted as a pivotal, long-term benefit for anyone looking to acquire your company.
Benefits of Outsourcing
Potential M&A partners are keen to identify and implement efficiencies which can help reduce their acquisition costs. A potential acquisition target that has already demonstrated the ability to effectively utilize outsourcing to reduce expenses presents a very attractive case. Outsourcing not only allows you to focus on core capabilities, the savings realized from outsourcing specific services can be quantified.
One caution: Many buyers are wary of assuming long-term contracts with outsourcing partners that they had no role in choosing. If selling your business is a possibility in the near future, be sure you negotiate more flexible contracts with outsourced service providers.
Focus on Efficiency
Your company may have taken steps to improve efficiency across a wide swath of business functions. But not all potential buyers are interested in all aspects of your efficiency initiatives. Highlight which efforts have been the most successful, and those which have had the biggest impact on the company’s bottom line. An M&A advisor may be able to provide comparative data that shows how effective your efficiency efforts have been, making your company even more attractive to buyers.
Even if you are not currently contemplating the sale of your business, taking steps to improve efficiency can be an effective way to improve operations and boost profits. And, when the time does come to put your business on the market, you will be ahead of the game.
If you’d like to learn more about Gray, Gray & Gray’s merger and acquisition consulting services, please visit the Mergers & Acquisitions page of our website.