Maximize Business Value Through Diversification
This is blog 4 of 10 in my series, “How to Increase the Value of Your Business” – Maximize Business Value Through Diversification.
In the past, we discussed owner dependent businesses, and how in order for your business to be attractive to a buyer, it must be able to thrive without you. Diversification in your business will increase the value!
Just as buyers do not want to purchase a business this is overly dependent on the owner, buyers do not want the business to be overly reliant upon its customers, employees, and suppliers. In other words, “not putting all your eggs in one basket!”
Let’s address three areas owners should concentrate on:
- Customer diversity: Buyers typically want to see a broad customer base where no one customer makes up more than 15 percent of the total revenue to help insulate them from the loss of any single customer.
- Employees: It is never good to be put ‘over a barrel’ and at someone’s mercy. When an employee knows they are in control and you cannot survive without them, they truly are in control, and may exude behavior they would not if they knew they were not the only one in the organization that can do what they do. For the company, this obviously makes salary negotiations difficult as well. If these individuals choose to leave you, you are in trouble until you find their replacement. You should always be searching for human capital as a business owner.
- Suppliers: You also do not want to be at the mercy of your suppliers. Even though you may be able to take advantage of volume discounts by purchasing more goods or services from your supplies, you just do not want to allow them to be the only game in town. You can still have loyalty and a strong relationship with your suppliers, but make sure to spread a little love around.
In closing, understand diversification in your business WILL increase the value of your business since buyers want to minimize risk, and do not want to be dependent upon any customer, employee, or supplier.
Until next time!
Check out our correlating video —> https://www.youtube.com/watch?v=ZOT1HE09NVo&t=1s