Most business owners prefer not to look at their businesses through a critical lens. As it turns out, assessing potential shortcomings is one of the best investments a business owner can make. To fully understand a business, business owners who are considering a future sale of a business must also understand its various strengths and weaknesses.
A business is an investment—in time, energy, and financial resources. The effort and time invested in rooting out a company’s weaknesses is a smart, worthwhile investment. This work will pay dividends now and in the future. It can also help business owners prepare their business for a future sale down the road. Here are some key areas where weaknesses may appear:
A Flagging Market
A declining market is a significant red flag. Savvy business owners must be aware enough to spot a failing market and react accordingly. Noticing a worrisome trend or believing that revenue sources are declining or may soon decline are warning signs that means it’s critical to branch out, offer new services or goods, find new customers, and get current customers to agree to buy more. These steps show that a business can survive even in turbulent times—something buyers are eager to see.
Relying on Just One Product
If a company only offers one product, or one product forms a significant portion of the revenue, it’s a major risk factor—no matter how good the product is or how successfully it sells. Diversification boosts stability, and can even help a business bring in more customers. New goods and services support the business’s ability to weather storms such as supply chain disruptions. New products also open new customer channels, helping to diversify the customer base.
Customer Concentration
Similarly, customer concentration is an important factor. If a business has only a few customers, or if the loss of a customer or two could significantly impact profitability, then the business is very vulnerable through the eyes of an acquirer. Every prospective buyer will recognize this vulnerability. Finding new customers is a time-consuming investment, but one that is worth the effort nonetheless.
An Aging Workforce
Young people are not entering skilled trades. Tool and die manufacturers may soon be left with a critical shortage of skilled workers. Technology cannot possibly replace all of these workers. If the workforce is aging and not recruiting new staff, it can negatively impact a business’s stability and health. Owners must find ways to address this issue well ahead of any planned sale.
No one likes to perceive their business as weak. Yet every business has a few shortcomings and soft spots. Blindness to these issues does no favors, butorrecting them will. If a business owner struggles to identify their business’s shortcomings or are unsure how to address them, consider working with a skilled investment banking team. As an experienced transaction professional, an advisor understands how businesses sell, and what owners can do to achieve premium value for their company. Their expertise is well worth the money and offers a significant return on an initial investment.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses. Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner.
Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.