You've worked hard to build your company's reputation in the local
community. Convert that goodwill to real value as you prepare to sell
your business.
Valuation can make or break the sale of your business. If your
company is overvalued, it won't capture the attention of serious buyers
and can languish in the marketplace for years. But undervaluation can be
just as problematic. Although your business will sell more quickly, it
may also mean sacrificing the financial objectives you hope to
accomplish from the sale.
In the business-for-sale marketplace, overvaluation happens more
frequently than undervaluation. For years, the seller has worked hard to
build the company's reputation in the community, so when it's time to
sell the business the intangible value of the company's reputation
should be factored into the sale price, right?
The value of a company's relationships with customers, employees,
suppliers and other stakeholders is called goodwill--and it does have
real value for buyers. But to realize that value in the final sale
price, business sellers need to execute strategies designed to convert
goodwill to demonstrated business value.
How to Demonstrate the Value of Goodwill
As a small business owner, it's in your best interest to start making
a case for the goodwill value of your company as early as possible. The
more time and energy you invest in creating tangible measurements of
your company's relationships, the easier it will be to demonstrate its
goodwill value to prospective buyers.
With adequate planning, it's possible to increase your company's sale
price by strategically documenting foundational elements of goodwill
value.
1. Measure customer loyalty.
Customer loyalty is a reflection of your company's relationships in
the local community. Although most business owners recognize the
importance of loyalty improvements, relatively few owners establish
loyalty goals and document the achievement of loyalty milestones for
buyers.
2. Document customer service outcomes.
Businesses with strong customer service programs can benefit from
positive word-of-mouth, advocacy on social media sites and other
advantages. In addition to archiving positive customer comments and
customer service interactions, create mechanisms to measure the
effectiveness of your customer service efforts (e.g. average response
time improvements, customer survey results, etc.).
3. Prioritize employee retention and development.
Employee relationships play an important role in determining the
goodwill value of a small business. Buyers are willing to pay more for
stable companies that can demonstrate above average employee retention
rates and organized employee development programs.
4. Differentiate your products and brand.
Businesses that offer a unique product or service have a tendency to
pique buyers' interest. By differentiating your business from other
local providers, you can significantly improve its goodwill
value--especially if you can demonstrate that customers perceive your
business as the community's sole provider an in-demand product or
service offering.
5. Benchmark everything.
Benchmarking is the key to demonstrating the cash value of goodwill.
Sellers that make the biggest impact with buyers in the
business-for-sale marketplace gauge loyalty, retention and other
measurements against industry and regional benchmarks to quantify the
company's intangible value.
Most small businesses have at least some goodwill value that can be
converted into cash value during a business sale. However, the
quantification of goodwill can be nuanced, so it's advisable to consult a
business valuation professional before you assign actual dollar figures
to the value of your company's relationships with customers, employees
and other stakeholders.
http://www.inc.com/mike-handelsman/convert-community-goodwill-into-cash.html
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