Top 8 Things Business Owners Do To Crush the Value of their Business

8 Mistakes Business Owners Make that Hurt their Business Value
Mistake #1: Keep your financial records as obscure and inaccurate as possible to make sure that the IRS can’t figure out if you made a profit. Effect: If the IRS can’t figure out if you made a profit neither will a buyer.

 

Mistake #2: Don’t know what your competitors are doing, just assume you know what you don’t know. Effect: If you don’t know where your prices or services fit in the market your prices are probably too low. If they are too low you are missing profit. A smart business buyer will know this and buy your business based on your under-achieved profits, they will then increase the prices and make more money from your business than you did.

 

Mistake #3: Don’t document any systems, just spend 20 hours a day at the business and when somebody needs to know something they’ll ask. Effect: If you get hit by a truck, the business will be in the tank before you’re out of the hospital.

 

Mistake #4: Let people who you didn’t train….. be the people who train the new guy. Effect: See #3 above.

 

Mistake #5: Mix your personal finances with your business finances. (Relates to #1 above). Effect: You won’t be able to plan since you don’t know what your real business results are. If your business makes $200,000 but you spend $250,000 it’s the owners fault, not the businesses.

 

Mistake #6: Don’t get the proper business insurances you need. Example, many businesses who should have product liability coverage..don’t. Often they also fail to obtain adequate umbrella coverage or have policies that don’t adequately cover the risks. Do you know the difference between a claims made policy and an as occurred policy? Effect: Buyers don’t want to be exposed to litigation, which is inadequately insured, created by the business before they buy the business. I have seen more businesses fail due to under-insurance than I’ve seen businesses fail because customers don’t pay their bills.

 

Mistake #7 – No documented policies related to employees, i.e. vacation, sick pay, etc. Are employees classified as salaried who should not be? Are there 1099 contractors who really should be W-2 employees? Effect: If the best buyer for your business is a big company they will spend a lot of time in due diligence of employment practices and they don’t want to inherit confusion and risk. There is huge risk in poor employee documentation and policy inadequacies. If you have more than 4 employees you should seriously explore outsourcing your HR functions to professionals.

 

Mistake #8 – Let your customer concentration get out of balance. Meaning one or two customers represent a huge portion of your business Effect: A business with 2-3 customers that do 90% of the business has more risk than a business that has 100 customers each doing 1%. If your top customer does 75% of your business it might be easy for you to manage one customer but if that customer leaves you, you’ll take BIG steps backwards. Try to get your largest customer to represent no more that 10% of your total sales.

 

While it’s easy to get wrapped up in making a business profitable, always keep an eye on the things that make a business valuable.

I can guarantee every business owner one irrefutable fact. You will exit your business, either willingly or not, but it is 100% guaranteed. 


What other things do business owners do to crush the value of their businesses?